20100115

DAR ES SALAAM (Reuters) - Tanzania's food prices eased year-on-year in December, the government's statistics body said on Friday, as supplies in the market improved, but fuel prices and election spending are seen keeping costs high.

Food carries a heavy weighting in the basket of goods Tanzania uses to calculate inflation and a drought there late last year sent inflation rates soaring, like elsewhere in east Africa.

The inflation rate eased to 12.2 percent year on year in December from 12.5 percent in November, the National Bureau of Statistics (NBS) said, while those of non-food items rose to 8.6 percent year on year from 5.0 percent in November.

"If the rains continue to fall and food prices go down, then we may see a more notable decline of inflation during the August-September harvest season," said Haji Semboja, a research fellow at the University of Dar es Salaam's Economic Research Bureau.

Inflation rates in east Africa largely depend on rainfall because the baskets are heavily weighted on food. The region relies heavily on rain-fed agriculture and drought in the past few years has affected its economies badly.

Tanzania's food inflation rate decreased to 14.5 percent in the year ended December 2009 from 17.1 percent in the year ended November 2009, NBS said in a statement, as rains across the region improved food supply.

However, the monthly headline inflation rate rose by 2.1 percent in December. The NBS said fuel, power and water prices rose by 10 percent.

Semboja said the inflation rate was likely to hover around double digits in coming months as the government is expected to spend heavily ahead of elections scheduled for October.

"It all depends on the coming budget and whether or not it will finance its spending from donors or bonds and borrowing from the private sector," he said.
The statistics body did not revise its method of calculating the inflation rate, nor the basket of goods, as expected.

Food carries a 55.9 percent weight in the current basket of goods used to measure inflation. Central Bank Governor Benno Ndulu told Reuters in September that Tanzania intends to lower food's weight to about 42 or 43 percent.

Kenya revised its calculation method to a geometric mean in October, which slashed its inflation rate to 6.6 percent from the 17.5 percent it would have been using the old arithmetic mean.

NBS said the annual average inflation rate was 12.1 percent from 10.3 percent in the previous year.

"This was mainly attributed by the high annual average food inflation rate of 17.5 percent, whilst annual average non-food inflation rate was 3.8 percent," NBS said.