Spike in prices… Election spending to get worse…. Bond notes make little impact

By Paul Nyakazeya

Prices of most basic commodities have maintained a northward trajectory, dealing a body blow to struggling consumers as President Robert Mugabe’s populist administration increases its spending ahead of do-or-die elections next year.

The ruling ZANU-PF is likely to face a resurgent opposition coalescing around Morgan Tsvangirai of the Movement for Democratic Change (MDC-T).

The Financial Gazette can report that the price increases that began last December, after the central bank came up with bond notes in a desperate bid to stave off cash shortages cumulatively, amount to substantial amounts that have left consumers poorer.

Apparently, this is reflected by inflationary developments since December, with the country experiencing positive inflation in February for the first time since October 2014.

Before then, Zimbabwe had grappled with deflation, which refers to the general decline in prices.
But since December 2016, inflation — once dubbed the country’s worst enemy — has progressively moved upwards from -0,65 percent in January to 0,48 percent last month.

While this might sound insignificant compared to record-breaking levels reached at the height of the hyperinflationary crisis around 2007/08 that condemned the local unit to the dustbins of history, the sobering reality is that Zimbabweans learnt nothing from this episode.

With elections due by July next year, the governing party is on a spending spree to lure voters. This is certain to aggravate the inflation outlook.

Constitutionally, Zimbabweans go to polls after every five years. The last elections were held on July 31, 2013, which means that by July 31, 2018, latest, ballots should have been cast.

The two main parties, ZANU-PF and the MDC-T, have already elected their presidential candidates at their respective congresses, with President Mugabe and Tsvangirai resuming their rivalry for the fifth time since the birth of the labour-backed party in 1999.

Indications are that Tsvangirai might go into the ring backed by some of the fringe opposition parties to enhance their prospects of winning the poll.

Using its power of incumbency, the governing party has relapsed into its free-spending habits to keep the opposition in perpetual opposition notwithstanding the tightening fiscal pressures.

Resultantly, hard-pressed consumers are facing increasing inflationary pressures due to a tightening liquidity crunch and excessive government expenditure, which analysts warned was likely to escalate with election spending next year.

A survey of prices in most major retail outlets indicated a phenomenal rise for most products such as meat, toiletries, soaps and a range of non-basic products and stationary.

Between March and April, prices have, for instance, risen by between 10 and 15 percent, according to figures from the Zimbabwe National Statistics Agency (ZIMSTATS).

On Monday, ZIMSTAT said year-on-year inflation increased in April, gaining 0,27 percentage points to close the month at 0,48 percent. The Consumer Price Index (CPI) for the month ending April 2017 stood at 97,07 compared 97,01 in March 2017 and 96,60 in April 2016.

Beef, which cost between US$4 and US$5 for most super grades before the introduction of bond notes, is now retailing at between US$7,50 to US$8,20 per kg in many supermarkets around Harare.
However, meat-focused outlets were selling beef at prices ranging between US$5,20 and US$6/kg.

Last month, the Consumer Council of Zimbabwe (CCZ) said beef was retailing at around US$4,40/kg while pork rose from about US$4,50/kg to US$6/kg.

Some locally produced brands of cooking oil, which were selling for US$2,89 for a two litre bottle last month, are now trading at US$3,55 per two litre bottle.

On Monday, ZIMSTAT said year-on-year inflation increased in April, gaining 0,27 percentage points to close the month at 0,48 percent.

The Consumer Price Index (CPI) for the month ending April 2017 stood at 97,07 compared 97,01 in March 2017 and 96,60 in April 2016.

Beef, which cost between US$4 and US$5 for most super grades before the introduction of bond notes, is now retailing at between US$7,50 to US$8,20 per kg in many supermarkets around Harare.

However, meat-focused outlets were selling beef at prices ranging between US$5,20 and US$6/kg.
Last month, the Consumer Council of Zimbabwe (CCZ) said beef was retailing at around US$4,40/kg while pork rose from about US$4,50/kg to US$6/kg.

Some locally produced brands of cooking oil, which were selling for US$2,89 for a two litre bottle last month, are now trading at US$3,55 per two litre bottle.

Super refined maize-meal, which cost US$6,80 for a 10kg bag in March, is now being sold for US$7,65.
Detergent soaps have risen from US$0,89 to US$1,20 during the same period.

Fuel prices went up last week, as reported by this newspaper.

Not helping matters is the fact that electronic payments being promoted by government to replace real cash have attendant costs being passed on to consumers.

“If you look at the whole economy, prices of most goods are going up,” said CCZ deputy executive director, Rosemary Mpofu.

Interestingly, the cost of living as measured by CCZ’s low income urban earner monthly basket for a family of six decreased from US$ 582,92 in March to US$579,15 in April 2017 – a decrease of US$3,77 or 0,65 percent.

The food basket decreased by US$4,37 or 3,16 percent from US$138,17 in March to US$133,80 in April. This contradicts ZIMSTAT’s statistics, which indicated rising inflation.

Explaining the contrast, Mpofu said their consumer basket targets specific products, some of which could be under promotions, and it is for low income urban earners.

This is unlike ZIMSTAT CPI which captures the pulse in the entire economy and hence “reflects the extent of how prices are going up”.

The International Monetary Fund (IMF) last month said it was expecting the country’s inflation to hit 6,6 percent next year due to rising food prices and election spending.

In their World Economic Outlook report, the IMF said Zimbabwe would register an inflation rate of at least three percent this year.

Despite the introduction of bond notes in November last year, the country’s cash crisis has persisted, with retailers taking advantage of the relentless cash crisis to hike prices of basic commodities.

Minister of Industry and Commerce, Mike Bimha, said there were isolated sharp price increases for some products, but generally prices were stable.

“Looking at the National Pricing Commission report presented to me for the month of April and for the first half of May, there are isolated sharp increases of selected goods but generally prices are stable. If there was an alarming increase in most basic goods, CCZ would have alerted me,” he said, adding that due to the cash shortages, he did not rule out some retailers taking advantage of the situation to profiteer.

Economist, Trust Chikohora, said the introduction of bond notes had stoked inflation.
“Inflation is likely to keep rising given the impact of bond notes and parallel market activities,” he said, referring to a foreign currency black market for United States dollars.

He said a ban on the importation of selected products as well as “measures meant to push for local procurement while discouraging competition from imports will also lead to price increase”.

Government introduced Statutory Instrument 64 in July last year to remove some products from the open general import licence.

Importation of the restricted products requires a permit, but after they have satisfied authorities why the permits should be issued.

Old Mutual Securities (OMSEC) said in a commentary to clients that the latest surge in inflation was emanating “from cost push factors given the limited aggregate demand locally as consumers have limited disposable incomes”.

“Retailers as well as local manufacturers are reported to be incurring costs in sourcing foreign currency necessary to import critical imports for their inventory or working capital requirements,” said OMSEC.

Most companies are facing challenges accessing hard currencies for the importation of key raw materials, with banks failing to settle international payments on time.

Many have been compelled to resort to the black market where they pay a premium of up to 30 percent. This has had the effect of increasing prices for goods and services.

Zimbabwe relies heavily on imported goods mainly from South Africa and produces very little domestically. Some retailers have also become accustomed to making huge margins due to the high cost of doing business and the desire to make super profits.

Economist, Brains Muchemwa, said on account of the worsening foreign currency shortages and significant premiums importers are paying to access foreign currency, the inflation outlook was positive.

“Considering that Zimbabwe has been stuck in a deflationary trap for over two years, the positive inflation outlook will provide a rare window of relief for the geared corporates and with luck, some will wriggle out of their tight debt positions,” Muchemwa said.

Another economist, Evonia Muzondo, said companies were sourcing foreign currency at a premium on the parallel market mostly to import goods.

“Since the beginning of the year, prices of basic goods have been increasing due to a currency crisis precipitated by foreign currency shortages. Companies cannot absorb all those costs and therefore pass the biggest chunk to the consumer. Some (retailers) also take advantage of the situation to increase their prices unjustifiably,” Muzondo said.

In his 2017 National budget, Finance and Economic Development Minister Patrick Chinamasa said he was forecasting inflation to close the year at 1,1 percent from a -1,5 percent last year. Financial Gazette