Inflation: In January 2016, the annual inflation rate increased by 165%, mainly on account of elevated cost of transport, hotel & restaurant services, bread and cereals. The rising cost of living is piling additional pressure on households that highly depend on markets particularly urban poor and vulnerable populations in rural areas.
Exchange Rate: Due to severe dollar shortages, the divergence between the official and black market exchange rates continued to widen, two months after the government dropped the fixed rate system and adopted the floating regime. In early January 2016, the South Sudan Pound (SSP) exchanged at 21/$ in the black market, but has since lost further ground in late January and early February, exchanging in the range SSP 25 to 31/$, while the official exchange rate remained at 21. The monetary policy change came at a time when the country was facing the worst economic shutdown in its history- official devaluation happened amidst insufficient foreign inflows, reduced government revenues, depleted reserves, widening fiscal & current account deficits, ballooning public debt, run-away inflation and reduced standards of living. It is feared that the evolving situation could extend an already persistent vicious circle of economic shocks, setting the stage for eminent hyperinflation in the country. Fast tracking broad based complementary structural, monetary and fiscal policy reforms geared towards: strengthening alternative government revenue streams, taming government spending, controlling inflation, increasing agricultural productivity etc. will be necessary in order to moderate the economic crisis.
Cost of Fuel: Diesel and petrol in Juba, Torit and Bor retailed at about SSP 22 per a litre, while the prices were relatively higher in Aweil and Wau (SSP 29-31); and highest in Malakal (SSP 35-45). South Sudan's state oil company (Nile Petroleum) raised fuel prices in December 2015 following currency devaluation, further exerting additional pressure on food prices through increased transportation costs. However, fuel availability in petrol stations in most towns in the country has somewhat improved while the black market fuel trade has subsided as it is no longer lucrative (the earlier lowly pegged and controlled prices encouraged hoarding and making of windfall profits thus encouraged black market fuel sales).
Cost of Locally Produced Grains and Imported Staples: In January 2016, the prices of staple food commodities like sorghum, maize, beans, wheat flour, sugar etc. showed atypical seasonal increase in most of the monitored markets. Low local production, below average production in Sudan, increased cost of imports, insecurity and closure of the Western transport corridor were the main factors explaining increased prices of staple food.
Outlook: The national food market remains tight. On the demand side the evolving economic downturn has reduced income earning opportunities for many urban poor households while at the same time wiping out their purchasing power. On the supply side, availability of grains and legumes are limited in most areas due to reduced import flows and low local production in the last season; while imported food prices continue to rise, primarily because of the currency devaluation, in spite of the government waiver of import duties for imported foods. Even though food commodity traders are seizing the opportunity of the favorable dry season road access to restock and scale up prepositioning, access to foreign currency remains the main constraint to food imports. In the most likely scenario, prices of staple food commodities will continue to increase through the lean season until the next green harvests are realized in August 2016. The successful implementation of the Peace agreement will restore investor confidence and has heightened the hope of market recovery in the conflict affected Greater Upper Nile region (Unity, Upper Nile and Jonglei). A window of opportunity also exists to incentivize markets following the opening of the Sudan border