Inflation Dynamics in Tanzania: An Exploratory Review of Reforms, Trends and Challenges

Abstract

Abstract This study explores the inflation dynamics in Tanzania, analyzing the interaction of government policies, domestic factors, and external shock over the past five decades. While the existing literature has examined particular inflation dimensions, a holistic inflation picture is lacking, which this study aims to provide. Through rigorous documentation and review performed quantitatively and qualitatively, inflation trends, the effect of major policy reforms, and inflation management challenges are examined. The findings indicate that inflation has varied considerably with times of high volatility juxtaposed with times of relative stability. Market reforms such as fiscal and trade reforms have strengthened macroeconomic stability and recently contained inflationary pressures. However, structural bottlenecks such as a narrow tax base, low financial inclusion, dominant informal sector and limited institutional capacity persist and confront the effective management of inflation. Global commodity price volatility, the effect of climate change, and political events further exert pressure on prices. Policymakers need to tackle the challenges of inflation management and price stability effectively and holistically. Widening the tax base, improving financial inclusion, strengthening institutions, economic diversification, and reducing the effect of climate change, coupled with the sustainable improvement of macroeconomic management, are the major steps to improve living standards and foster Tanzania’s growth.