ZIMBABWE’S monthly and annual inflation continue to be very low despite rises in oil prices and global logistical expenses as a direct result of conflict in the Gulf, showing that the fundamental soundness of the economy allows the country to weather these storms.
Monthly inflation in both US dollar terms and, far more significantly in ZiG terms, has been low since the beginning of last year, giving a 22-month run of low monthly inflation.
This was translated into low annual inflation at the beginning of this year as the previous higher price rises were no longer part of the 12 months used to calculate annual inflation.
Businesses and their customers along with all other Zimbabweans have now become used to low inflation, and are surprised when a product rises in price by a few percent and so ask questions.
People expect prices to be constant, or very nearly constant, over the months, allowing them to budget sensibly when it comes to buying what they need or want.
The Zimbabwe National Statistics Agency (ZimStat) keeps a close watch on prices. Near the beginning of every month, over a few days, staff find the prices of several hundred items, making physical checks in supermarkets and speciality stores.
Those prices are loaded into the database and the percentage rise or fall in each price over the past month or past year is calculated.
To make the data more useful, ZimStat also work out the sector inflation for each group of products, such as food and non-alcoholic beverages, or for transport services. This allows ordinary people, businesses and policy makers to zero in on above average rises.
A survey of ordinary urban people gives the percentage of their spending made for each sector, so food for example is still the largest percentage of the average family’s monthly spending, although better off people will spend less of their higher income on food and the least well off the highest fraction of their monthly spending on that item.
A rich person will still spend more on food than a poor person, but there are limits on how much you can eat.
Transport services have recorded 12,9 percent inflation over the past 12 months according to ZimSat, generally that direct result of the Gulf conflicts disrupting oil supplies.
But with other costs far more stable, the rising costs of fuel and transport are diluted in the general economy, which is why in ZiG terms the annual inflation rate for all items is just 4,3 percent.
The growth in foreign currency earnings and the ease importers now have in paying their bills has helped ensure the Zimbabwean economy remains competitive. Local manufacturers are boosting their output significantly and adding new products to their ranges, but are also concentrating on remaining competitive in cost and quality.
Zimbabweans are not forced to buy local products. But they are buying ever more since the local industrialists are delivering on the quality and cost criteria.
If anything, the rise in global oil prices, matched by rising petrol and diesel prices in almost every country, helps local industry contain costs.
When the delivery truck needs a trip of just a few dozen kilometres from the factory to drop off orders from a large block of customers, fuel costs become an even tinier percentage of the final price.
Local industry, with ease of access to imported equipment and any imported extras to add to their Zimbabwean raw materials, plus the end of Zesa load-shedding, are able to run their production lines far more efficiently, without the stop-start problems that once hit them. That also helps to contain costs.
The growing prosperity of Zimbabweans, thanks to the growing economy with benefits widely spread, is creating larger markets, again an efficiency booster as overheads are spread over more streams of revenue so allowing costs to be controlled.
The continually falling prices of solar technologies is also opening new markets; it is not unusual these days for more prosperous farmers, even those with fairly small farms, to be in the market for a fridge and a range of other appliances.
ZimStat’s figures give positive support to estimates that Zimbabwe will end the year with annual inflation at below 5 percent.
With 24 months of low monthly inflation and 12 months of low annual inflation, many of the major fiscal and monetary reforms of the Second Republic will have been cemented in the new normal.
Maintaining that new normal is lot easier than achieving it, and since the benefits for ordinary people and almost all productive businesses are so great, there will be pressure to continue that maintenance as the days of high inflation and hyperinflation recede into the history books.
