East Africa grapples with Inflation

As the East African Community approaches the East Africa monetary protocol deadline, the issue of inflation targeting has taken center stage. Food prices continue to play a significant role in determining price stability in East Africa, posing a challenge for critics of inflation targeting. Roy Daniels, the Head of Africa Trading at Rand Merchant Bank, shared his insights on the matter during a recent interview on CNBC Africa. Daniels emphasized the potential for inflation targeting to succeed in emerging and frontier markets, provided there is sufficient buy-in from member countries. However, he acknowledged that coordinating institutional capacity across multiple central banks in the region, especially with the inclusion of South Sudan, could prove to be a significant hurdle. While there is a general willingness among countries to collaborate and strengthen the region, the practical implementation of a unified inflation targeting policy may face resistance and compliance issues. Daniels highlighted concerns about potential deviations from the agreed-upon policy framework and the unequal influence of larger economies like Kenya within the East African Community. The interview also delved into the challenges of achieving inflation harmonization similar to the European Union's criteria, considering the varying inflation rates in countries like Uganda and Kenya. Daniels drew parallels to the EU's stringent measures and sanctions to achieve convergence and questioned the feasibility of replicating such mechanisms in the East African context. He pointed out existing barriers such as border restrictions and passport controls within the region, signaling a slow progress towards a unified fiscal policy and union. Daniels expressed skepticism about swiftly implementing a regional inflation target, citing the complexity of aligning diverse economies and policy preferences. The interview underscored the intricate dynamics at play as the East African Community navigates the path towards harmonizing inflation and enhancing economic stability within the region.