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Inflation declined by three percent, Central Bank

Rwanda’s inflation decelerated to 2.1 percent in the first quarter of 2021 from 5.1 percent recorded at the end of 2020, providing relief to the economy whose growth is expected to rebound this year after slumping into recession the previous year.

The decline, the Central Bank says is attributed to the fall in core inflation which stood at 3.4 percent in the first quarter of 2021 from 4.2 percent in the previous quarter and is projected to slightly increase 2.7 percent in the second quarter but close at 2.2 percent by the end of the year.

“The decline in headline inflation was reflected in all components,” a statement from Central Bank says. Accordingly, food inflation eased from 6.2 percent to 0.4 percent in 2021 first quarter which is attributed to good domestic agricultural production supported in season A of 2021 that found favourable weather conditions that started at the end of 2020.

On a quarterly basis, food inflation dropped on the back of the decline in fresh products that outweighed the uptick in prices of some processed and imported food items in line with international prices, the bank noted.

Domestic inflation eased to 0.1 percent from 4.9 percent in the last quarter of 2020 on the backdrop of a huge supply of vegetables from season A-2021.

Whilst Alcoholic beverages eased the trend in the core inflation with higher prices recorded as a result of measures to curb tax evasion but education inflation pushed up core inflation which was triggered by an increase in school fees in March 2021.

On the other hand imported inflation surged in the first quarter of 2021 to 5.9 percent from 5.6 percent in the previous quarter of 2020 as a result of challenges in the supply chain of food, transport and rise in international prices triggered by the Covid-19 pandemic and the effects of the exchange rate.

“It is worth noting that food prices remain the key driver of both domestic and imported inflations,” said John Rwangombwa Governor, Central Bank.

Since last year, the economy recorded an increase in prices of products mainly food with most products such as wheat flour and cooking oil recording a higher increase thus affecting the consumer purchasing parity.

On the energy side, inflation reduced both on a yearly and quarterly basis when comparing quarter 4 2020 with quarter one of 2021 from 2 percent to -0.2 percent and 2 percent to 0.1 percent respectively.

Despite the second wave of the pandemic which has further restricted movements in the first months of this year, the bank projects GDP to rebound to 5.1 this year, supported by sound economic policies as well as vaccine rollout.

The economy slumped into recession for the first time since 1994 contracting by 3.4 percent in 2020 due to the Covid-19 pandemic but recorded a gradual recovery in the third quarter of 2020 and is expected to continue this year as the Composite Index of Economic Activities (ClEA) increased by 10.2 percent in 2021 first quarter compared to 5.5 percent in the same period under review 2020.

As a result, the monetary sector remains resilient on the backdrop of favorable policy measures with broad money growing by 22.5 percent in March this year compared to 12.3 percent in the same period under review in 2020 with outstanding credit to the private sector growing by 22.0 percent from 12.5 percent in March 2020.

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