eBusiness Weekly
Golden Sibanda Senior Business Reporter
ANALYSTS expect Zimbabwe’s annual rate of inflation to drop sharply by October this year, as projected by Finance and Economic Development Minister Mthuli, with the current currency premiums induced rally seen only as temporary.
The inflation rate raced to 97 percent for May from 75,8 percent in April, the Zimbabwe National Statistics Agency (Zimstat) said on Monday, driven by galloping parallel market exchange rates.
The rate of inflation depicts that magnitude of price increases over a measured time, usually a month or year, but a fall in inflation does not signify drop in prices.
Since the directive by the Reserve Bank of Zimbabwe in September last year, that local banks must separate nostro foreign currency accounts (FCAs) and local currency accounts, prices of goods and services shot up and inflation took off from 5,39 percent to slightly over 20 percent in about a month.
On a monthly basis, consumer price inflation soared to 12,5 percent in May 2019, up from a 5,5 percent gain in the prior month.
Zimbabwe’s inflation rate averaged 4,99 percent from 2009 until 2019, reaching an all time post dollarisation high of 97,85 percent in May and a record low of minus 7,50 percent in December 2009.
Minister Mthuli recently told Parliament that the directive in September last year triggered a wild run in inflation, pointed out that this was only akin to lifting the “lid off a boiling pot”, as the fundamentals for high inflation were already in place.
The Treasury chief, however, says notwithstanding the sustained effect of currency premiums on prices, which is buffeting pricing models, inflation will fall drastically by October due to the technicality that the difference between base indices for 2018 (when inflation was low) and 2019, will contract sharply.
His target this year is to reduce the budget deficit from about 12 percent of GDP in 2018 to five percent. Inflation is thus expected to slow down to single digit benefitting from the fiscal consolidation measures and containment of money supply growth.
Most importers, both of finished products and critical raw materials, have over the past several months depended heavily on the parallel market for foreign currency due to acute shortages facing the economy on the back of sustained high imports. While the Reserve Bank would allocate foreign currency to productive and other key sectors of the economy in terms of prescribed priority list, there has not been enough to cater for everyone.
This also came against an extensive array of competing needs such as fuel, soya beans or crude cooking oil, drugs, medicines, electricity, raw materials, machinery, which saw many economic agents failing to access the foreign currency they need for imports.
With production largely subdued in key productive industries that include manufacturing, agriculture and (to an extent) mining, Zimbabwe has had to depend on imports amid gaping export-import mismatch.
Unrelenting pressure in demand for foreign currency, in the midst of a gargantuan import bill, importers turned to the black market for forex, with the high premiums incurred in purchasing the currencies factored in prices, hence the high inflation.
Former Government advisor and ex-University of Zimbabwe Professor of Economics, Ashok Chakravati, said current inflationary pressures were only temporary as Government had contained the initial source of inflation drivers; excessive Government expenditure as well as high money supply.
“Broadly speaking, I agree with the Minister (Mthuli Ncube) that inflation will come down. It was running high (initially) because of the RTGS money that was created in the past few years.
“But we have stopped new money creation since last year October and November. There is no longer new money creation; the Reserve Bank of Zimbabwe is also not printing any money. All that has stopped, those are the things that cause inflation.
Confederation of Zimbabwe (CZI) immediate past president, Sifelani Jabangwe, shared similar sentiments, although he offered a different perspective that inflation would slow down on the back of reduced product affordability and high prices against static incomes.
Jabangwe, however, said he was unsure whether the rate of inflation will come down to single digit levels as earlier projected by Minister Mthuli, but stressed the point that reduced affordability will result in slowdown in prices increases.
“The inflation is eventually expected to fall because of the management of money supply, but the fact that (the rate of inflation) has not yet fallen is due to the level of erosion of confidence (in the market).
“Inflation is eventually going to fall; the fall is going to be a forced one because people will not be able to afford products due to continued increases in prices, but it is not like prices will fall, but the rate of increase in prices,” Jabangwe said.
