Zim inflation under spotlight

Business Reporter
The country’s year-on-year inflation rate is expected to continue declining until the end of the year largely due to the country’s narrow manufacturing base. Latest figures released by the Zimbabwe National Statistics Agency peg the September rate at 0,86 percent while at the beginning of the year it stood at 2,51 percent.

An economist, Mr Witness Chinyama, said the decline in September was largely expected as the manufacturing sector is not producing enough for the country’s consumption, hence a continued reliance on imports which are cheaper.

“Our manufacturing industry is yet to fully recover from the hyperinflationary era, which means most businesses are importing products and even raw materials from within the region, particularly South Africa.

“It then becomes difficult to factor in those raw material expenses into the final product price as it becomes very exorbitant hence processed imports will continue to be cheaper than locally produced products.

“Many people have a misconception that if inflation goes up then it means prices of goods have also gone up and vice-versa and yet inflation only refers to the rate at which prices are increasing,” he said.

He added that at the current rate inflation could end the year at around 0,50 percent. Mr Chinyama also said the current scenario shows an imperative change of the business model in the country as during the hyper- inflationary era businesses focused on prices charged in order to maximise revenue while the focus is now on volumes sold.

He added that the rate of inflation was likely to continue dipping to levels close to zero percent in the long term while prices will almost become stagnant for as long as the local production base does not improve.

Another analyst, Mr Herbert Mazonde, also predicted that the downward trend in inflation would continue until the end of the year partly because of the South African rand’s continued weakening against the US dollar.

“Since we import most of our goods from South Africa, their currency’s continued weakening against the US dollar is partly beneficial to us as a country as this increases our buying power since the US dollar is our main currency medium,” he said.

This, he said, would translate in a deceleration of the rate at which prices will increase.
Mr Mazonde added that the country’s food production capacity is slowly improving after the hyperinflationary period hence the country is slowly moving towards self-sustenance which is also an ingredient towards slowing the rate of inflation.

He also said there could be a change in trends in terms of the inflation rate after Treasury announces the 2014 National Budget depending on what measures were going to be adopted. However, another economic analyst, Mr Jonathan Kadzura, said the inflation rate that the country was using at present was speculative as it was not supported by economic fundamentals.

“Inflation in Zimbabwe is based on speculation rather than the fundamentals of economics as retailers that import from South Africa use unjustified pricing regimes on their products bent at profiteering,” he said.

He said that he believes year-on-year inflation rate is actually going up hence the need to support local production premised on the consistent supply of water, electricity and transport infrastructure.

Mr Kadzura also said Government should come up with some form of trade barriers that stipulate what to and what not to import as currently even trivial products locally available are finding their way into the country thus largely influencing the inflation rate.
Mr Chinyama, however, warned that continued decrease in inflation to below zero percent could lead to an unpleasant situation of deflation which is basically the reduction in the general level of prices in an economy and its effects are immense on the economic conditions of any country.

“Once as a country you reach deflation it becomes unpleasant as this means per head availability of money reduces premised on a fall in aggregate demand thus stagnating the economy,” he added.