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Martin Kadzere Senior Business Reporter
CONSUMERS have not benefited from the fall of the rand against the US dollar as prices of goods and services remained largely unchanged despite the South Africa currency plunging 20 percent against the greenback this year. The depreciation of the South African rand should ordinarily be good news to consumers in Zimbabwe as it should translate into low prices. This is particularly so because Zimbabwe uses the US dollar more as an official currency.
Hence, the fall in the rand results in importers using fewer dollars than before, thereby creating savings.
This is coupled by the fact that South Africa alone constitutes about 75 percent of Zimbabwe’s import basket, meaning this favourable position in exchange rate is transmitted significantly into the pricing structure in the economy.
Fuel prices have been largely stable this year despite increase in excise duty in March. A survey conducted by the Herald Business in Harare showed that prices have remained largely the same since the beginning of the year.
Some economic analysts said the retailers “might be profiteering” because, under normal circumstances, the effect of the depreciation of the rand against the dollar is supposed to be passed on to consumers in the form of low prices.
“Prices have remained the same but the fall in the rand against the dollar should have resulted in marginal decline in prices of most commodities,” said Mr Gift Mugano, an economic lecturer at Port Elizabeth University in South Africa.
The South African rand is the weakest among emerging market currencies that saw significant drops in value against the green back.
Poor economic numbers and labour unrest has seen the rand weakening, reaching to a four-and-half year low. Africa’s largest economy showed less-than-expected growth in the first quarter of 2013, according to SA media reports, citing official data released by the government on Wednesday.
This year, the rand is the worst performer of the 16 currencies tracked by Bloomberg and 20 tracked by Reuters.
Some analysts however say retailers could be using the savings to finance other operations of their businesses.
“With liquidity challenges prevailing, retailers may have seen it better to keep the prices unchanged and probably use the savings to finance other operations of their businesses,” said one economic analyst.
The depreciation of the rand has also been one of the major driving factors behind plummeting inflation in Zimbabwe.
The year on year inflation rate for the month of July 2013 as measured by the all items Consumer Price Index stood at 1,25 percent, shedding 0,62 percentage points on the June 2013 rate of 1,87 percent, Zimstats reported last week. This means that prices as measured by the all items CPI increased by an average of 1.25 percentage points between July 2012 and July 2013.
The year-on-year food and non-alcoholic beverages inflation prone to transitory shocks stood at 1,74 percent while non-food inflation stood at 1 percent. The month on month inflation rate was -0,38, percent shedding 0,25 percentage points on the June of -0,13 percent. But liquidity has also contributed to declining inflation. The issue of liquidity constraints on inflation has two opposing forces.
On one hand, the shortage of money itself results in high cost of money which has been witnessed in the form of high interest rates which build pressure on cost push inflation. On the other hand, liquidity challenges manifest themselves in constrained demand in the market thereby dampening price movements.
This second force of constrained demand caused by low liquidity seems to be greater than the cost push factors coming from high interest rates in Zimbabwe as witnessed by the continuous fall in annual inflation.
Online Reporter