Deep beneath the city stood a machine that had been running for as long as anyone could remember.They called it The Immortal Engine.Nobody knew exactly when it had been built. Some said it was designed by economists. Others said engineers had merely inherited it from generations before them.But everyone knew one thing:The engine could never stop.Inside it lived millions of people.Some worked in the food chambers. Others operated transport systems, factories, banks and shops. There were farmers, traders, teachers, miners and mechanics.Every morning, the engine moved.And every morning, the engineers watched its gauges.One gauge mattered more than almost any other.It was called INFLATION.Inflation did not tell them whether the engine was moving.The engine was always moving.Instead, it told them how quickly the cost of living inside the engine was changing.When inflation was rising rapidly, the engineers knew something was happening inside the machine.Perhaps it was overheating.Perhaps fuel was becoming expensive.Perhaps too much pressure was building in one part of the system.Or perhaps several problems were happening at once.The engineers therefore had different departments.And, importantly, they did not all control the same parts of the machine. <h2>The Department of Monetary Controls</h2>On the eastern side of the engine was a large control room.Above the door was written:BANK OF ZAMBIA — MONETARY CONTROLInside sat the monetary engineers.Their most important instrument was a giant lever called the POLICY RATE.The lever controlled the cost of borrowing across the engine.When the engineers raised the lever, borrowing generally became more expensive.The idea was simple:If people and businesses were borrowing and spending too aggressively, raising the rate could help slow demand.It was like pressing the engine's brake.But brakes were not meant to be pressed forever.If the engine was already slowing too much, keeping the brake down could create another problem.Factories could slow.Businesses could postpone investment.Consumers could reduce spending.Economic activity could weaken.So the monetary engineers constantly asked:Is the engine moving too fast, or are we already slowing it too much? <h2>The Energy Department</h2>On the western side of the machine was another control room.This one belonged to the Energy Regulation Engineers.They controlled something very different.They did not control the brake.They controlled the fuel system.Fuel was the energy that kept the engine moving.But fuel had a cost.When the price of fuel increased, almost everything connected to the engine could feel it.Trucks needed fuel.Buses needed fuel.Farmers needed fuel.Factories needed fuel.Generators needed fuel.And when transportation became more expensive, the cost could eventually find its way into the price of food and other goods.The engineers knew this.But they also had another problem.If the engine needed fuel, someone had to pay the cost of producing and supplying that fuel.So the Energy Department had to adjust the fuel gauge when the underlying cost of fuel changed. <h2>Then came September 30</h2>One morning, two messages arrived at the central command room.The first came from the Monetary Control Department."Reduce the policy rate."The engineers had decided that the monetary brake could be eased.The engine did not need as much braking pressure as before.Some observers outside the engine immediately became confused."Why are they stepping off the brake?"But the monetary engineers had their own gauges.Inflation had been declining.The economic environment had changed.And they were trying to balance the need to contain inflation with the need to avoid unnecessarily restricting economic activity.So they released some pressure from the brake. Then another message arrived.This one came from the Energy Department."Increase the price of fuel."Now everyone was confused.One department was easing the brake.Another was making fuel more expensive.Was the engine malfunctioning?Not necessarily.The two engineers were controlling different parts of the machine.The Monetary Department was concerned with the speed and pressure of demand.The Energy Department was dealing with the cost of the energy required to keep the machine running.And this is where understanding inflation becomes important. <h1>The Engine Cannot Stop</h1>Imagine you are sitting inside the Immortal Engine.The machine is moving.If it moves too quickly, things start to go wrong.The engine becomes hot.Workers become uncomfortable.Components wear out faster.The engineers may need to apply the brakes.In an economy, one way this can show up is through rapidly rising prices.That is one reason central banks can raise interest rates.But imagine the opposite.The engine is moving too slowly.Factories are producing less.Businesses are investing less.People are spending less.Workers are losing income.The engineers may decide that keeping the brake pressed is no longer appropriate.So they ease it.That is broadly what a policy-rate cut is trying to do.But now imagine that, at exactly the same time, the fuel itself becomes more expensive.The engine still has to run.The trucks still have to move.The food still has to be transported.The generators still have to operate.So even though the monetary engineers have eased the brake, the higher fuel cost can push up costs elsewhere in the machine. <h1>Cooling and Heating</h1>The most important lesson inside the Immortal Engine was this:The economy can be moving while inflation is falling.People sometimes imagine that falling inflation means prices are falling.They aren't necessarily.If inflation falls from 10% to 6%, prices are generally still rising.They are simply rising more slowly.Think of the engine's temperature.Suppose yesterday the engine was heating at a rate of 10 degrees per hour.Today it is heating at 6 degrees per hour.The engine is still getting hotter.It is just getting hotter more slowly.That is similar to what happens when the inflation rate falls while prices continue to increase.The engineers therefore have to watch both the temperature and the rate at which the temperature is changing. <h2>But Fuel Can Change the Temperature</h2>The fuel department creates another complication.If fuel becomes more expensive, transportation and production costs can rise.A farmer may pay more to move fertiliser.A trucker may pay more to transport maize.A bus operator may face higher operating costs.A manufacturer may pay more to move raw materials.Eventually, some of these costs can be passed on to consumers.The engine begins generating more heat.The monetary engineers see this on their gauges.But they cannot simply respond to every increase in fuel prices by slamming on the monetary brake.That could create a different problem.If the underlying economy is already slowing, excessive braking could make the engine struggle.So the engineers have to distinguish between demand-driven inflation and cost pressures. <h1>The Great Balancing Act</h1>This is why the Immortal Engine has so many engineers.One person cannot control everything.The monetary engineers control the brake.The energy engineers control the fuel system.Other engineers work on electricity, food production, exchange rates, government spending, taxes, trade and financial stability.All of them are trying to keep the same machine running.And sometimes their actions can appear contradictory.One engineer says:"Ease the brake."Another says:"Fuel is more expensive."Both can be true.Because the economy is not controlled by one lever.It is a machine with thousands of interconnected parts. <h1>And The Engine Keeps Moving</h1>Inside the Immortal Engine, the people eventually learned something important.Their goal was not to stop the machine.Stopping it would be disastrous.The goal was to keep it moving at a pace that could be sustained.Not too fast.Not too slow.Not too hot.Not too cold.The engineers would constantly adjust the controls.Sometimes they would apply the brake.Sometimes they would release it.Sometimes they would have to pay more for fuel.Sometimes fuel costs would fall.And sometimes an adjustment in one department would create consequences somewhere else.The machine would never be perfectly still.Because an economy that is functioning is always moving.The real challenge is keeping that movement sustainable.And somewhere deep inside the Immortal Engine, another gauge began to flash.INFLATION: 6.1%The engineers looked at it.The engine was still moving.But for the moment, it was not moving as violently as before.Then another alarm appeared:FUEL COST: RISINGThe engineers looked at each other.They knew their work was far from finished.Because the Immortal Engine never sleeps.And neither do its engineers.

The Immortal Engine

<h3>The pump-price increase will hit transport first, food next — but the bigger inflation risk may be the kwacha</h3>Zambia’s latest fuel-price adjustment was hard to miss.In September, petrol rose from about K25.29 to K31.46 per litre, while diesel increased from K26.86 to K33.27. That is roughly a 24% increase in pump prices in a single month.The immediate question for households and businesses is straightforward: how much of that increase will eventually show up in the prices of everything else?To get a sense of the answer, we analysed 15 years of Zambian data, covering fuel prices, inflation, food prices, the exchange rate, international oil prices and trade activity between 2011 and 2026.The results suggest that fuel does matter — but its effect is slower and smaller than the size of the pump-price increase might suggest. <h2>Fuel does push inflation higher</h2>Our estimates indicate that a 1% increase in pump prices is associated with roughly a 0.07% increase in the overall price level within a year.Applied to September’s roughly 24% increase, this translates into an estimated 1.5–1.7 percentage-point addition to annual inflation at the peak, assuming other factors remain unchanged.That is meaningful.With inflation at 6.1% in September, a fuel shock of this size could, on its own, push inflation towards the upper end of the Bank of Zambia’s 6–8% target range.But it is important to put the estimate in perspective. Fuel is only one part of the inflation story. <h2>The shock takes months to work through the economy</h2>The impact of a fuel increase does not arrive everywhere at the same time.First come transport costs.Within the first few weeks, higher petrol and diesel costs begin feeding into bus fares, taxi charges and freight costs. Transport is the fastest channel through which the fuel shock appears in our analysis.Food comes later.Diesel is an input into the movement of maize, mealie meal, vegetables and other goods. It also affects milling, distribution and other parts of the supply chain.As a result, food prices respond more slowly, with the effect building over several months.Our estimates suggest that the overall inflation impact is largest at around five months after the initial fuel-price increase.For the September adjustment, that points to early 2027 as a period when the fuel-related inflation pressure could be at its strongest. <h2>Why households may feel it most at the market</h2>For many households, the most important question is not what happens to the headline inflation rate. It is what happens to the price of food.Food accounts for a significant share of household spending, making this channel particularly important.Using national average prices from ZamStats, our estimates suggest that a fuel increase of September’s magnitude could eventually add roughly K30–40 to the price of a 25 kg bag of roller mealie meal, from a current price of around K182.But this is one of the areas where caution is particularly important.Fuel is not the main determinant of the price of mealie meal. Maize availability, rainfall, harvests, stocks and other supply conditions can have much larger effects.In a good harvest year, the fuel effect could be relatively small compared with favourable maize supply.In a poor harvest year, however, higher fuel costs could add another layer of pressure. <h2>When fuel prices fall, prices may not follow</h2>There is another feature of the data that matters for consumers.Fuel-price increases and decreases do not appear to have perfectly symmetrical effects.When fuel prices rise, the resulting increase in costs tends to persist. When fuel prices subsequently fall, other prices do not necessarily fall by the same amount or at the same speed.Transport operators, traders and retailers may reduce their costs, but prices across the economy can remain sticky.This means a future reduction in pump prices should not automatically be interpreted as a reversal of the September increase in the cost of living. <h2>The kwacha may be the bigger inflation story</h2>Perhaps the most important finding from the analysis is that fuel prices are not the dominant driver of inflation in Zambia.Our estimates suggest that changes in pump prices explain only around 2–3% of movements in inflation.The exchange rate accounts for a considerably larger share, at roughly 15–23%.A 1% depreciation of the kwacha against the US dollar is estimated to raise consumer prices by about 0.3% over a year — roughly four times the estimated effect of a 1% increase in fuel prices.Food-price shocks, particularly those linked to agricultural conditions, account for much of the remaining variation.This distinction matters because the fuel price and exchange rate are closely connected.Zambia imports its fuel and pays for it in foreign currency. When the kwacha weakens, the local-currency cost of importing fuel rises, putting pressure on pump prices.That means an economy can face a double shock: a weaker kwacha raises the cost of imported goods while simultaneously making fuel more expensive.Historical episodes illustrate the point. The sharp inflation increases of 2015–16 and 2020–22 coincided with substantial exchange-rate pressures, alongside other domestic and external shocks. <h2>There is also a growth cost</h2>The effect of higher fuel prices is not limited to inflation.Businesses face higher transportation, production and distribution costs, while households have less money available for other spending.Because Zambia does not publish monthly GDP figures, we constructed an economic activity indicator using variables including imports of production and consumer goods, copper prices and borrowing costs.The indicator suggests that fuel-price increases are followed by a slowdown in economic activity over the subsequent two to seven months.Firms may reduce purchases of inputs, while households cut back on discretionary spending.The estimated effect is subject to considerable uncertainty, so it is better interpreted as evidence of a direction of impact rather than a precise forecast of how much GDP will fall. <h2>What the September increase means</h2>For households, the sequence is likely to be familiar: transport costs first, followed by broader price pressure — particularly food — over the following months.For businesses, sectors that depend heavily on logistics, including agriculture, retail, distribution and construction, are likely to face the pressure early.For policymakers, the fuel increase creates a meaningful inflation shock, but the wider picture is more complicated.The bigger risk is not necessarily fuel prices in isolation. It is fuel prices rising at the same time as the kwacha weakens and food supply comes under pressure.That combination would give inflation several channels through which to accelerate.The September fuel adjustment therefore tells only part of the story.The bigger question for Zambia’s cost of living in the months ahead may be what happens to the kwacha, food supply and the wider economy alongside the fuel price.Note: These are model-based estimates using historical Zambian data from 2011–2026. They are not forecasts of actual future prices. The estimates assume other factors remain unchanged and carry uncertainty, particularly for individual food products.

What September’s Fuel Hike Means for Zambia’s Economy

The Bank of Zambia has cut its key policy rate by 250 basis points to 10.75%, delivering its fourth consecutive rate cut as inflation continues to ease.The decision came on Wednesday, September 30, against the backdrop of a sustained disinflationary trend that has been underway since early 2025.And this was a move we were watching closely at Katondo Street Journal.In yesterday’s analysis, “What Will the Bank of Zambia Do With the Policy Rate?”, we examined the case for another cut, pointing to falling inflation and the changing monetary policy environment.<a href="https://www.katondostreet.com/article/what-will-the-bank-of-zambia-do-with-the-policy-rate?utm_source=chatgpt.com" rel="noopener noreferrer" target="_blank">Read yesterday’s KSJ analysis: What Will the Bank of Zambia Do With the Policy Rate?</a><h3>Inflation gave the Bank room to move</h3>Annual inflation eased to 6.1% in September, down from 6.2% in August. That is the lowest annual inflation rate since February 2018 and places inflation close to the lower end of the Bank of Zambia’s 6–8% target range.The decline in inflation has been supported by several factors, including the suspension of fuel taxes, zero-rating of value-added tax and a relatively resilient Kwacha.The result is a very different inflation environment from the one Zambia faced when monetary policy was considerably tighter.<h3>What does a 10.75% policy rate mean?</h3>The policy rate is not the interest rate consumers see directly on their loans. Instead, it is one of the key signals used by the central bank to influence financial conditions across the economy.A lower policy rate can eventually translate into lower borrowing costs if commercial banks adjust their lending rates.For businesses, that could mean cheaper financing for working capital and investment. For households, it could affect the cost of new borrowing and, depending on the type of loan, existing variable-rate credit.But the transmission will not necessarily be immediate. Banks also consider their own funding costs, liquidity and credit risks when setting lending rates.<h3>The bigger question now</h3>With inflation at 6.1%, the focus shifts from whether inflation is falling to how the Bank manages monetary policy with inflation now near the bottom of its target range.The latest cut therefore marks another step in Zambia's transition from an environment of high inflation and tight monetary conditions towards one where policymakers have greater room to support economic activity.For businesses and consumers, the question now is whether the reduction in the policy rate will begin to show up more clearly in the cost of credit.For KSJ, Wednesday's decision also provides a useful reminder: watching the inflation data can tell us a lot about where monetary policy may be heading.

Bank of Zambia Cuts Policy Rate to 10.75% — As KSJ Predicted

Zambia's latest inflation number looks encouraging.Annual inflation fell from 6.2 percent in August to 6.1 percent in September, the lowest level since February 2018. Food inflation also eased, from 6.0 percent to 5.8 percent, while non-food inflation remained at 6.6 percent.But there is a danger in reading the 6.1 percent figure as simply meaning that life is becoming cheaper.It isn't.What is happening is more subtle: the rate at which prices are rising has slowed. The prices themselves remain elevated. <h2>Think of inflation as the speed of a car</h2>The easiest way to understand this is to think about a car.If a car is moving at 80 kilometres per hour and the driver reduces speed to 70, the car is still moving forward. It has not started going backwards.Inflation works in much the same way.When inflation falls from 6.2 percent to 6.1 percent, prices are still moving upwards. They are simply increasing at a slightly slower pace.So Zambia has not entered a period of falling prices.It has entered a period where the increase in prices is moderating.That distinction is particularly important for households because the price increases of previous years are already built into the prices people face today. <h2>Zambia's inflation story is increasingly a food story</h2>The September numbers tell us something important about where the moderation is coming from.Food inflation fell to 5.8 percent from 6.0 percent. ZamStats attributes the movement mainly to price changes in cereals, vegetables, groundnuts and dried beans.That matters enormously in Zambia.For a household, food is not an occasional purchase. It is a recurring and unavoidable expense.So even a relatively small moderation in food-price increases can help ease pressure on household budgets.But we should also look at what has not changed.Non-food inflation remained at 6.6 percent.That tells us that the moderation is not yet broad-based across the entire consumer basket. Some of the pressure outside food is still present. ZamStats points to movements including passenger air transport and vehicle prices among the factors affecting non-food inflation. <h2>The monthly number gives us another warning</h2>There is another detail that deserves attention.While annual inflation fell, monthly inflation increased from 0.2 percent in August to 0.4 percent in September.This is important because annual inflation looks backwards over twelve months, while monthly inflation gives us a more immediate sense of what happened to prices during the latest month.So we have an interesting combination:Year-on-year inflation is coming down, but prices still increased during September, and they increased faster than they did in August.That is another reason not to interpret 6.1 percent as "prices are falling."They are not. <h2>Why households may not feel the improvement</h2>This is where the official statistics and household experience can appear to diverge.Suppose a family was spending K2,000 a month on a particular basket of essentials.If prices rise, that basket might eventually cost K2,100, then K2,200.If inflation subsequently slows, the basket does not return to K2,000.It may simply move from K2,200 to K2,250 instead of K2,200 to K2,300.For the economist, that is an improvement in inflation.For the household, however, the K2,250 still has to come out of the monthly budget.That is why lower inflation and a high cost of living can exist at the same time. <h2>Zambia also has a currency story</h2>The exchange rate matters considerably for Zambia because the country imports many of the goods, inputs and fuels that eventually feed into domestic prices.A more stable currency can reduce the pressure coming from imported inflation by making imported goods and inputs relatively less expensive in kwacha terms.Recent commentary on Zambia's inflation has pointed to a relatively resilient kwacha as one factor helping to contain price pressures.But this is not something households should take for granted.A renewed weakening of the currency, combined with higher international commodity or fuel prices, could quickly feed into domestic costs.That is particularly relevant because Zambia's inflation outlook remains exposed to global oil-price developments. The IMF has warned that higher global oil prices and geopolitical tensions could put renewed pressure on inflation and the exchange rate. <h2>Then there is fuel</h2>This may be one of the most important issues going forward.Government has been using temporary tax relief on fuel — including the suspension of excise duty and zero-rating of VAT on petrol and diesel — as part of efforts to cushion consumers and businesses from high fuel costs. The current extension runs through September 30, 2026.That matters because fuel is not just a line item on the household budget.Fuel affects transport, distribution, agriculture, manufacturing and ultimately the price of goods in shops.So as we move beyond September, one of the questions for the inflation outlook is how fuel prices will behave once these temporary measures expire.The September inflation number therefore needs to be viewed as a snapshot, not the end of the story. <h2>The real test is purchasing power</h2>Ultimately, the most useful way to judge the cost-of-living situation is not simply to ask whether inflation is falling.We should ask:Are Zambians' incomes growing faster than the prices of the things they need?If inflation falls from 10 percent to 6 percent but wages and household incomes are barely changing, families can still feel financially squeezed.Conversely, if incomes grow faster than prices, households can experience an improvement in purchasing power.That is why the conversation about inflation should move beyond the headline number.6.1 percent is good information. But it is not the whole household story.The encouraging part is that Zambia's annual inflation rate has been trending down for several months, reaching its lowest level since February 2018.The caution is that monthly prices are still rising, non-food inflation remains at 6.6 percent, and important risks remain around fuel, the exchange rate and external commodity prices.So the most accurate description of the current situation is perhaps this:Zambia is seeing slower price increases, not lower prices.And for households, the difference between those two statements is enormous.

Zambia's Inflation Is Slowing. But the Cost-of-Living Story Is More Complicated

Minister of Finance and National Planning Situmbeko Musokotwane has stated that the Government will rigorously prioritise safeguarding the economic stability achieved over the past five years to prevent a resurgence of high inflation and escalating living costs.Speaking during an appearance on ZNBC’s Sunday Interview programme, Dr Musokotwane emphasised that maintaining price stability remains paramount for protecting household purchasing power.“Remember, this is the beginning of the problem when people say the cost of living is high. If the inflation rate, the change in prices, takes place every year at a fast pace, eventually the cost of living goes high. That has been stabilised and we want to keep it that way,” he explained.However, the minister acknowledged that macroeconomic stability alone does not fully satisfy public expectations for immediate relief, promising that the upcoming 2027 national budget will be distinctly growth-oriented.He noted that the administration’s strategic response will centre on accelerated job creation, the opening of new mines, driving widespread participation in agriculture, and stimulating broader business opportunities across the country.Dr Musokotwane highlighted that these targeted efforts are directly anchored by President Hakainde Hichilema’s overarching national vision known as the Grow Zambia Agenda.Urging active citizen participation, he summarised the core economic directive with a clear call to action: “The priority is produce, produce, produce and export, export and export.”To back these ambitions, he stated that the Government is restructuring the national framework so that state responsibilities actively facilitate private sector growth while continuing to heavily leverage public private partnerships (PPPs).Pointing to visible economic indicators such as increased infrastructure-driven job creation, higher vehicle imports and booming retail food chains, Dr Musokotwane maintained that recent gross domestic product (GDP) growth is tangibly benefiting ordinary citizens.He also noted that improved tax compliance and a broadened tax base are bolstering institutional operations, particularly among local councils.Dr Musokotwane assured foreign and domestic investors that the Government will maintain a predictable, stable regulatory environment to ensure that all investment pledges are successfully actualised on the ground

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The Immortal Engine

What September’s Fuel Hike Means for Zambia’s Economy

Bank of Zambia Cuts Policy Rate to 10.75% — As KSJ Predicted

Zambia's Inflation Is Slowing. But the Cost-of-Living Story Is More Complicated

Government vows to keep inflation low