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Business Reporter
Prices of basic goods continue to fall following recent measures by the Government and the Reserve Bank of Zimbabwe (RBZ) to hit the black market exchange rate by drying up liquidity, and thus remove inflationary pressures, with some suppliers now issuing credit notes to retailers so they can reduce their prices earlier than expected.
A problem that arose is that while those producers who were pricing according to expectations of future inflation, or who had costed according to the exchange rates at the peak of the black market, have been easing back on prices, there are still stocks in the system costed at the higher prices.
At the same time, the strict control of liquidity means people cannot borrow to buy, and the surge in school fees payments this month has also dried up many family budgets.
With liquidity a lot tighter and stocks accumulating, some suppliers are issuing credit notes to retailers so they can reduce prices promptly instead of waiting for the net order, that is revalue their stocks in store now closer to the lower replacement values.
This was being done with great gusto in the opposite direction during the inflationary surge in the second quarter of this year, and was one of the drivers of that inflation.
A credit note is a document that corrects a mistake on an order or an invoice, or refunds an amount paid for products or services. Retailers are being given a choice either to be refunded or to get products worth the value
of the note.
“There was huge anticipation that Zimbabwe dollar will continue depreciating and most suppliers had used forward pricing since some retailers normally pay 21 days after delivery,” said an executive with a leading supermarket chain.
This meant that the manufacturers were charging retailers the price they expected three or four weeks later with the inflation spiral in full force. When that spiral never happened, their prices were now overhigh and unaffordable by their customers.
This is what the credit notes are trying to correct as suppliers return to rational pricing. Retailers generally have simple pricing structures using a margin on what the supplier charges.
The main assault on that inflationary spiral of the second quarter was, besides trying to get suppliers to operate within the law, using market forces to dry up the surge of local currency being created within the private sector and speculative sectors.
A major policy intervention by the authorities to hammer speculation and prevent people borrowing to feed the black market included raising the bank policy annual rate from 80 to 200 percent. This ripped out the profit in specualtion.
In July the Reserve Bank of Zimbabwe introduced gold coins to remove excess local liquidity, by offering those with large piles of cash in bank accounts a far better solution to preserving value than racing to the black market to buy foreign currency. That has pulled $10 billion out of the market.
The exchange rate on the black market has now been stable and even edging down, while the rate of month-on-month inflation has been falling in the last two months, following a spike in June.
For two months now, the exchange rate on the parallel market has been largely stable, with occasional marginal drops. It is currently between $700 and $750 to the US dollar.
The interbank rate, the official rate, has been inching up and gaining and already is higher than some of the black market buy rates and economists and the Reserve Bank see the falling black market rate and the rising official rate coming close to convergence.
The liquidity crunch has seen a rapid sell-off on the Zimbabwe Stock Exchange, which has since fallen 20,34 percent since the beginning of September. Stocks have long been favoured by local investors seeking refuge from the sliding domestic currency and inflation. But a lot of the bubble created during the period of high inflation has burst, largely because the authorities stopped even more liquidity being created within the banking system and feeding this market.
The Government move to check out contractors and suppliers also helped. Those who were cleared quickly, because they could show they were using official exchange rates to calculate local prices and were giving value for money, are being paid with very little delay, while those who have a lot of explaining and recalculating to do will see longer delays.
Besides turning off the borrowing tap for speculators, and using gold to pull out a lot of liquidity sitting in bank ccounts, more was mopped up by the Reserve Bank through daily and weekly Negotiable Certificates of Deposits to commercial banks.
The trend for stable or falling prices has also stopped shoppers stocking up. When prices rise fast and frequently people will scrap up money to buy now before prices rise again. When they might be falling people will wait until the last minute. At the same time some of those private stocks bought in the inflation period are being used and eaten, and in any case many families had to find school fees from last month’s salary, so cutting spending now.
Retailers are now even worried about possible deflation.
“It’s critical for authorities to increase injection of some liquidity on the market,” Confederation of Zimbabwe Retailers president Mr Denford Mutashu said.
Harare-based economist Mr Victor Bhoroma said the measures by the authorities yielded price stability.
“Prices are indeed going down, consumer demand for fast moving consumer goods has slumped and the free-market exchange rate has retreated,” said Mr Bhoroma.
He said the Government should provide basic public services and keep the economy running by paying living wages to civil servants, paying suppliers on time, settling debt and providing guarantees to ensure long term funding for public infrastructure construction or maintenance.
The last Monetary Policy Committee meeting in August resolved to maintain the tight monetary policy stance to ensure sustained exchange rate and inflation stability in the economy and keep the bank policy rate at 200 percent per annum and maintain the medium-term accommodation interest rate at 100 percent per annum
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