Inflation returns to hound Zim

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HARARE – Inflation is anticipated to continue firming on account of the general increase in the prices of goods and services, thus sending shivers down the spines of ordinary Zimbabweans who are still hounded by memories from the 2008 hyperinflationary era, which wiped out their hard-earned savings.


Annual headline inflation accelerated from 0,21 percent in March to close at 0,48 percent in April, in response to an upward trajectory in food prices edging up again to close May at 0,75 percent.


That northward trend is unlikely to be arrested anytime soon because the fundamentals influencing price spirals are still evident.


In its April Economic Review, the Reserve Bank of Zimbabwe (RBZ), admitted as much, attributing the inflation momentum to an increase in both food and non-food inflation.


Year-on-year food inflation surged by 0,14 percentage points, from 1,21 percent in March 2017 to 1,35 percent in April 2017.


Similarly, non-food inflation gained from a negative 0,25 percent in March to 0,08 percent in April.


“The increase in food inflation is largely attributable to the rise in the price of imported food items, whose supply has been affected by Statutory Instrument 64 of 2016,” the apex bank said.


While the RBZ anticipates food price increases to be dampened in the medium-term by the import substitution for most food items and a good agricultural season, independent analysts are cautioning that inflationary pressures could persist for much longer.


Regional think-tank NKC Economics (NKC) analyst, Chantelle Matthee, said inflation will continue to trend gradually higher in the coming months on the back of low liquidity.


“Zimbabwe’s economy remains under pressure due to low liquidity. The country urgently needs to stimulate production to increase exports and foreign exchange inflows, which in turn will place the central bank in a stronger position to alleviate the cash shortages.


“Regardless, we expect inflation to continue to trend gradually higher in the coming months,” Matthee said.


Zimbabwe has grappled a tenuous liquidity crisis since dollarisation in 2009. This was the period when the country ditched its own currency, which had lost its intrinsic value, due to hyperinflation in favour of a multi- currency regime that has been dominated by the use of the greenback.


While the transition to a basket of currencies anchored on the United States dollar had appeared to tame the inflation beast between 2009 and 2011, the country has let its guard down once again.


Critically, it has not been able to produce enough for export, resulting in an adverse situation where it has perennially suffered a serious trade imbalance, with imports dominating the exchanges.


Resultantly, the country’s economy has been plunged into a liquidity crisis, which has dealt a body blow to both households and industries.


Not even the introduction of bond notes last November and the advent of Statutory Instrument 64 have ameliorated the situation because the economic fundamentals have hardly changed.


Market watchers have also cautioned that consumers must brace for basic goods price increases as millers and manufacturers comply with a government directive requiring them to add nutrients in the production of most basics such as mealie-meal, cooking oil, sugar and flour, which is used to make bread.


Millers are expecting the price of bread and the staple mealie-meal to jump by about 10 percent when this directive becomes effective on July 1, because they will be forced to pass onto the consumer the additional costs relating to the importation of nutrients, chemicals, equipment and a premium paid to access foreign currency on the black market.


This comes as the International Monetary Fund last month projected that Zimbabwe’s annual inflation was expected to hit 6,6 percent next year, driven by rising food prices and election spending.


Equities firm, IH Securities (IH), recently said black market premium cash rates were also pushing food prices upwards as manufacturers were passing costs onto the consumer to offset parallel cash market rates.


While government issued bond notes — officially at par with the US dollar — in November 2016 in an attempt to ease cash shortages, the notes are used solely for domestic commerce.


Given that traders still require US dollars to import goods and raw materials, firms have resorted to the black market in search of the greenback forking out a premium of up to 25 percent.


“Inflation continues to gather momentum with the March Consumer Price Index gaining 0,15 percentage points on the February figure of 0,06 percent to 0,21 percent, possibly due to the premiums paid by manufacturers for accessing foreign currency being passed on to the final consumer,” IH said, in its snapshot for the month of April.


Zimbabwe — which was in deflation since October 2014 — is witnessing an unprecedented surge in basic food price increases since the introduction of bond notes, with most shops introducing a three-tier pricing system for products paid for in cash using US dollars; bond notes and bank cards, respectively.


The country’s annual inflation rate broke into positive territory for the first time in over two years in February this year gaining 0,71 percentage points on the January 2017 rate of -0,7 percent to 0,6 percent.

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