Three-tier inflation rate reporting gets thumbs up

Tapiwanashe Mangwiro

Senior Business Reporter

FINANCIAL and trade union experts have commended the adoption of a three-tier inflation reporting model by the Zimbabwe National Statistics Agency (ZimStat), saying the move will help businesses in planning and financial reporting.

This comes after ZimStat began reporting separate inflation figures following the introduction of the new currency, Zimbabwe Gold (ZiG), on April 5, 2024 by the Reserve Bank of Zimbabwe (RBZ).

This month, ZimStat reported weighted and US dollar inflation figures separately.

According to the latest statistics, the USD month-on-month inflation rate was 0,8 percent in April 2024, gaining 0,6 percentage points on the March 2024 rate of 0,2 percent; whilst the weighted month-on-month inflation rate was 2,9 percent, shedding 2,0 percentage points on the March 2024 rate of 4,9 percent.

From next month, inflation figures will be reported in the current weighted format, US dollar and ZiG figures separately.

“Going forward from the April price statistics, the country will publish three price indices with the ZiG index, US dollar index and the Blended Index.

“This month we do not have a ZiG price index because it has been rebased and according to international practice,” ZimStat said.

Financial experts and trade unionists in February 2023 expressed reservations over the publication of blended inflation figures only as the benchmark of inflation reading in a country where most companies use the local currency in reporting financials and paying salaries.

Economist Dr Prosper Chitambara said before the changes, life was hard for businesses, which only had access to blended inflation figures for their planning and decision-making.

“The issue was a critical one because companies do not account in blended terms but exclusively in USDs or ZiGs, so it becomes an issue to have the blended rate as the benchmark inflation. Interest rate calculation for those borrowing or for collective bargaining had become complicated.

“Bringing back the other two metrics of inflation measure will definitely help business and industry in terms of planning and also borrowing,” he said.

The same sentiments were expressed by accountants and workers’ groups, who said the new base inflation reading was complicating their respective professions.

Dr Chitambara added that the publication of the different sets of inflation rate figures should continue given that many employees are paid in ZiGs and the related inflation data is important for collective bargaining.

Several companies on the Zimbabwe Stock Exchange use the local currency in their reports and will continue to need the ZiG inflation to prepare inflation-adjusted figures.

Mr Enoch Rukarwa, an economist, weighed in, saying the move to return to separate currency inflation figures is welcome because the economy does not have blended loans, therefore, interest rates will still be based on either currency inflation.

“Interest rate calculation or determination for US dollar and ZiG credit facilities is mutually exclusive and independent. Lately, the RBZ has been referencing inflation trends to determine optimal interest rates.

“However, with blended inflation, that modelling process was not possible since our financial sector loans are either ZiG or USD and not blended, hence the relief we have with the return of the separate inflation reporting,” he said.

According to Mr Rukarwa, inflation adjustment on financial numbers requires independent inflation rates that are either US dollar- or ZiG-based.

Blended Inflation numbers without supporting input inflation figures for the respective currencies would be inadequate in financial statement preparation and efficient cost determination.

Veteran trade unionist Mr Peter Mutasa said the blended inflation model was disadvantageous to employees as they were not earning blended inflation-based salaries.

“Blended inflation did not take into account the reality of most employees as they are predominantly paid in the local currency as employers were refusing to pay in blended form. So, this meant that workers were being shortchanged by being underpaid and carrying the cost of exchange rate losses,” Mr Mutasa said.

According to Mr Mutasa, such a move will bring joy to workers as they can now bargain.