eBusiness Weekly
Taking Stock Kudzanai Sharara
This week, Zimstat released the last set of inflation figures for the 2019 calendar year showing December month-on-month figures at 16,55 percent a slowdown from 17,50 percent in November 2019.
The year-on-year figures were not published in line with Finance and Economic Development Minister Mthuli Ncube’s order that they are not a true reflection of price movements on the ground.
Minister Ncube argued that prior prices that prevailed when the local currency was pegged at 1:1 with the US dollar cannot be compared with those that prevailed when the local dollar was floated.
Said Ncube: “The change in currency regime from multi-currency to Zimbabwe dollar has definitely impacted on the base for calculation of CPI indices and hence inflation.
“Given this transition, Zimbabwe National Statistical Agency will defer publication of year-on-year inflation while building up data of prices in mono-currency for a period of 12 months to February 2020.”
It’s a decision many economic players did not agree with and found baffling. Some argued that economic players, Minister Ncube included, cannot make forecasts and projections in the absence of annual inflation figures.
Consultant Brett Chulu, in one of his articles, went as far as saying it is “methodologically impossible” for the minister to then make GDP forecasts without using annual inflation figures. Nominal GDP measures the output of the economy based on price changes, he argued.
“Ncube is secretly using hard year-over-year inflation figures that he is denying others,” said Chulu.
Many agreed with Chulu, with the Nssa Workers’ Union (Nssawu) taking to the courts saying Minister Ncube’s decision was unconstitutional.
One of the court submissions said Minister Ncube’s decision offended the principle of good governance and transparency which are codified in the constitution of Zimbabwe.
Nssawu, on its part, argued that it derived its locus standi from the fact that it negotiates employee salaries annually, with primary considerations being inflation and the consumer price index as derived from annualised inflation figures.
But Minister Ncube remained defiant and the debate has raged till now. The good news is that publication of year-on-year figures will resume next month (February 2020.)
But that does not mean the annual numbers are not known. Using Zimstat current and historical figures, one can easily calculate the annual inflation rate. In December it stood at 521 percent.
But Ncube, be rest assured is secretly calculating year-on-year inflation and he knows the correct figures.
But for today, let’s focus on the official month-on-month figures, which came out at 16,55 percent in December 2019 having 0,91 percentage points on the November 2019 rate of 17,46 percent.
This is an encouraging trend although it still missed Government’s target of 10 percent. What is even more encouraging is that the month-on-month Food and Non Alcoholic Beverages inflation rate stood at 15,75 percent in December 2019, shedding 6,88 percentage points on the November 2019 rate of 22,63 percent.
Rising prices of basic products, food in particular, was a cause for concern for both consumers and producers. From a consumer’s view point, it meant foregoing some basics, while from a producer’s view point it meant falling sales volume. This was reflected in the numbers released by ZSE listed companies. National Foods reported a 36 percent drop in sales volumes for the three months to September 2019. At Dairibord and Simbisa volumes and customer count were down by 40 percent, at OK Zimbabwe by 23 percent.
The pattern was the same at beverages giant Delta Corporation where lager beer volume declined 40 percent for the three months to September 2019.
Overall, what these micro numbers represent, is a shrinking economy as producers sale less than they used to. With the purchasing power eroded, businesses might cut back on production and in the process might even cut back on workforce.
The major driver of the exchange rate is not money supply but the exchange rate which continued to weaken throughout the year 2019.
Most economic agencies have been indexing prices to the exchange rate, some on the interbank rate and others on the parallel market rate. September was a very bad month as the interbank rate moved from 10,83 on September 2 to 15,92 on September 30.
This reflected in the October month-on-month inflation figures, which reached 38,8 percent, the second highest in the year. The highest inflation at 39,3 percent was in June following another volatile exchange rate movement in May.
From a start rate of 2,5 to the dollar, the rate ended the year close to 16,77 to the dollar. It has since reached 17. While the pace of weakening on both the interbank and the parallel market has slowed — it took 37 days for the interbank rate to move from 16 to 17 — there are certain fundamentals that continue to exert pressure.
With the economy remaining dependent on food imports and investment conditions still unattractive, Zimbabwe might continue to find it difficult to generate resources needed to sustain a local currency that is worthy of respect. In that respect, inflation might not be easily tamed if the exchange does not stabilise.
It is true that inflation has come down. But this is due to the stable exchange rate both on the parallel market and the interbank market in the last two months.
