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Vuyisile Mlilo, Business Reporter
ZIMBABWE experienced negative month-on-month inflation for the second consecutive month in August, although there was an increase of 9.1 percentage points.
According to the latest data from the country’s statistics agency, ZIMSTAT, deflation moved from 15.3 percent in July to a deflation rate of -6.2 percent in August. For the second month in a row, the nation experienced negative month-on-month inflation, albeit with a significant increase of 9.1 percentage points.
Deflation is the opposite of inflation, where there is a general decrease in prices for goods and services. The implications of deflation for Zimbabwean shoppers with prices of basic goods continuing to drop.
Sunday News spoke to renowned economist and businessman Mr Morris Mpala who noted that while deflation had its consequences it was a welcome move to Zimbabweans who in recent months had experienced sky-rocketing prices of basic commodities.
“Deflation phenomena under normal circumstances can be a big challenge for producers and retailers as it has a potential to eat into their profits by reduced demand of goods and services. This is due to customers expecting a future saving by the anticipated reduction in price. In our case, deflation is most welcome due to the fact that cost of goods had gone wild due to galloping exchanging rates.
What is happening now is price discovery, goods and services are experiencing price correction in line with the exchange rates. This is good for everyone as restocking is coming in at a lower cost which translates to lower prices until stable prices are achieved,” said Mr Mpala.
Another economist and National University of Science and Technology lecturer, Mr Stevenson Dhlamini said the deflation that the Zimbabwean economy is experiencing was a result of the tight monetary policy stance that was adopted by the Reserve Bank of Zimbabwe.
“In the short term it has a positive effect on the real wages earned by workers, which means that they are enjoying more value for their money.
The deflation, however, also implies that the real interest rates have gone up which increases the debt burden on economic agents (both households and businesses). In the short term also it implies that the Government is likely to collect less in terms of tax.
Inflation is generally viewed as an indirect tax, therefore a decline in inflation rate (negative inflation) would imply a decrease in tax in the short term.”
Bongani Ndlovu