The chief economist of Standard Bank in Mozambique said that the price of diesel is increasing more slowly in the country and is 20% cheaper than in South Africa, considering that it helps to curb inflation in 2022.

"We consider in our model [of forecasts] that the adjustment of fuel prices in Mozambique will not be [done] at the pace that the market demands," said Fáusio Mussá, in an interview with Lusa news agency.

The war in Ukraine broke out at a time when the world is still suffering from several post-covid shocks in supply chains, which is fueling record levels of inflation on a global scale.

Still, Standard Bank forecasts single-digit inflation (below 10%) in Mozambique and a pullback in subsequent years, with rates of 9.4% (2022), 7.3% (2023), 6.5% (2024) and 5.9% (2025).

"The State Budget does not foresee any fuel subsidies, but the operators are willing to continue importing in the expectation that there will be an agreement with the Government to be compensated because of the losses they are incurring" by maintaining prices, he explained, in what he classified as "a typical situation in Mozambique."

In addition to this dragging of prices at the gas stations, in April and May Mozambique enters a phase in which the cost of food "tends to go down" due to the seasonal growth of local agricultural production.

"This year it may be that, because of the impact of the rains, this period" of deflation "will occur a little later," but whatever time it is, it influences the Standard bank's forecast.

In parallel, the central bank keeps interest rates high to control inflation: the 'prime rate' for credit operations in Mozambique rose 50 basis points to 19.1% in May, after seven months of no change.

"If we consider inflation as a tax for the most disadvantaged, this policy of the central bank tends to minimize the impact for the majority of the economy: more than 50% of the Mozambican population is extremely poor," said Fáusio Mussá.

According to the analyst, "higher interest rates affect a segment of the market that has access to financing," but it is "a segment" of middle and high incomes, as opposed to a majority of the Mozambican population that is very sensitive to inflation.

"The price of not taking action to help curb inflation, in my opinion, is much higher," even with the limitations on economic growth and job creation that high interest rates can bring, he noted.

"Maintaining macroeconomic stability is expensive. We had a growth expectation for this year of 3.1% that we adjusted to 2.8%, a slower growth, and that is probably the cost of macroeconomic stability," he said.

Standard Mozambique Bank forecasts GDP growth rates of 2.8% this year (already discounting the impact of the war in Ukraine and global inflationary risks), 3.7% next year, 4.1% in 2024 and 4.3% in 2025.