admin2015 Zimbabwe’s average inflation rate should be around 5 percent.
The 5 percent inflation rate is what the Government is targeting by the end of this year.
Inflation denotes the rate or magnitude by which prices increase over a given period, either measured over a one-year period or on a monthly basis.
However, although the annual rate of inflation has declined over the past two months, observers have noted that significant inflationary pressures dog the country’s macro-economic environment.
One such observer is the African Development Bank (AfDB).
“Despite the low inflation levels in Zimbabwe, inflationary pressure still persist in the economy due to low productivity levels and high utility charges (housing, water, electricity, gas and other fuels).
“The exchange rate fluctuation between the United States dollar and the South African rand is also affecting prices of local commodities, as most of Zimbabwe’s imports are from South Africa,” said the regional financier in a statement this month.
The annual inflation rate, which stood at 4,9 percent as at the end of last year, declined to 4,3 percent in January and February. It further went down by 0,3 percent in March.
Economist Mr James Wadi says the recent declines came as a “surprise”, especially in view of rising international oil prices.
“Annual inflation, which stood at 4,9 percent in December, surprisingly decelerated to 4,3 percent in January and February and further to 4 percent in March,” he said.
He, however, cautioned in the interpretation of inflation.
“The recent decline in annual inflation does not mean that general prices of goods are falling. Instead, it means that while the general price of goods is still increasing, the rate of price increase has slowed down.”
The AfDB noted in its report that Zimbabwe’s annual inflation was higher in March this year compared to the same month last year, increasing from 2,7 percent at that time to 3,98 percent in March 2012.
This means that prices have stealthily been incremental despite the general stability of the annual inflation rate.
Zimbabwe’s annual inflation data are averages for the year, not end-of-period data and therefore are not necessarily reflective of price movement trends.
Mr Wadi said an analysis of the country’s Consumer Price Index since the introduction of the multi-currency system shows that prices have been steadily increasing.
“In 2009 when the country abandoned the Zimbabwean dollar after a prolonged period of hyperinflation, the CPI was pegged at 100. This re-based CPI of 100 was reflecting the prices of goods that were prevailing at the time of dollarisation.
“The March 2012 CPI is now 101,4, implying that compared to prices at the inception of multicurrency, the general prices have increased by 1,4 percent.
“However, the prices of goods at the inception of the multi-currency were relatively high as these prices were partly a reflection of insufficient availability of goods in the market as well as lack of understanding of the true value of the US$ at this time.
“The decline in inflation in 2009 was partly a correction of this anomaly and a sign of improved availability of basic goods.
“Therefore, although the current inflation of 4 percent seems to be relatively low, the price level of general goods is indeed very high. This confirms the general feeling by consumers that the goods are indeed generally more expensive,” he said.
Nonetheless, the annual inflation rate has broadly remained stable as the economy has benefited on a number of fronts, namely a relatively stronger US$ against the ZAR has kept imported inflation well contained.
At the same time, up to now food inflation has remained low and stable, partly benefiting from improved agriculture output during the previous season, both domestically and in the region. Lower output in the current season may, however, have negative consequences in inflation in the outlook period.
Observers also point out that the use of the US$ may be serving the country well in respect of reducing the impact of international fuel prices, compared to, for instance, if the country was using the ZAR.
Over the past few months, domestic fuel prices have remained fairly stable, although recently South Africa announced that the price of petrol had been adjusted to
R12 a litre which is equivalent to US$1,60 a litre when converted at an exchange rate of ZAR7,5/US$.
Although inflation has managed to skirt these challenges up to this point, continually increasing fuel prices and the US$/ZAR exchange rate (in view of the high level of imports from that market) remain poised as inflationary pressures for the rest of this year.
Negative food crop output is also expected to have broader implications for Zimbabwe’s inflation rate. Food inflation has not been a significant driver of annual inflation rate in recent times.
However, a drought situation this year could result in a significant shift in this regard as the country faces a staple food deficit of around 800 000 tonnes.
It is these upside risks to inflation that should push it beyond the targeted 5 percent by year-end.
Online Reporter