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Inflation, Inflation Everywhere?

All eyes have been focused on inflation over the course of 2022. Ours too! Most of the attention has been given to the developed world and for good reason—inflation is the highest it’s been in over 40 years for many countries. Consumer prices remain volatile and elevated across much of the world, denting investor optimism for easing inflation and less aggressive interest rate hikes. One country’s recent inflation print really caught our attention. One hint: They do not have an Inflation Reduction Act.

And The Winner is …

Angola! Angola appears to be bucking the trend of higher-than-expected inflation that continues to plague many countries. Consumer prices rose 19.78% year-on-year in August, which admittedly is high, however it has decelerated from 26.09% in the same period last year and eased from a year high of 27.66% in January 2022, according to the National Institute of Statistics. Inflation has dipped to below 20% for the first time in more than two years. Although the CPI number remains in double digits—and is higher than what is considered ‘normal’ in countries like the United States and Britain—it points to a slowing for the seventh straight month (Exhibit 1). It also contrasts with trends reported in other regional economies; South Africa, Nigeria and Ghana reported rising inflation in recent months.

How is the Angolan government taming inflation? High oil prices have boosted the Angolan currency (kwanza) against the US dollar. Banco Nacional de Angola forecasts the inflation rate will be slightly below 18% in the current financial year, maintaining its inflation target of around single digits over the medium term. The central bank held the benchmark interest rate at 20% at its meeting in July.                                                                        

Exhibit 1: Angola’s inflation rate trends lower this year

National CPI, Yearly % Change

Sources: National Institute of Statistics of Angola, Bloomberg, as of 13 Sept 2022.

Slowing inflation and improving credit fundamentals bode well for the administration of President Joao Lourenco, who took the country’s helm in 2017 and was sworn in for a second term following the hotly contested August elections. Angola’s Constitutional Court ruled in early September to dismiss complaints filed by the leading opposition party, UNITA, seeking to annul the vote count. In our view, the elections were relatively peaceful and a second term for Lourenco could signal continuity and continued implementation of pledged reforms.

Moving on Up

Angola’s economic fundamentals continue to improve. Much progress has been achieved in the fiscal and external metrics, underpinned by a return to positive economic growth, sound fiscal management and higher oil prices. Notably, public debt-to-GDP declined significantly to below 79% in 2022 from about 135% in 2020, according to IMF data. The IMF has projected overall growth will turn positive this year and reach around 4% over the medium term. Despite graduating from a three-year, $4.5 billion IMF financing facility in December 2021, Lourenco’s government has pledged to continue reforms, including privatizing state-owned firms and diversifying revenue streams for the oil-rich economy.

Angola has significant work to do to improve its structural weakness, rather poor governance and human development indicators, such as political transparency and education. The 2021 Transparency International Corruption Perceptions Index gave Angola a score of 29, ranking Angola 136th out of 180 countries.

On a positive note, Angola was one of the most improved countries in terms of economic freedom from 2019 to  2020 among 165 jurisdictions, according to the Fraser Institute in its 2022 report titled “Economic Freedom of the Word.” The index published in the report measures the degree to which the policies and institutions of countries are supportive of economic freedom.