Price hikes, inflation haunt Zim again

By Farayi Machamire

Prices have suddenly shot up in Zimbabwe following a slowdown in annual inflation during the first half of the year, a leading financial research firm has said.

The latest data from the Zimbabwe National Statistics Agency (ZimStat) shows that annual consumer price index (CPI) inflation continued to accelerate in September to +5,4 percent year-on-year after jumping to 4,8percent year-on-year in August — still remaining within the Sadc’s convergence benchmark range of 3 percent to 7 percent — not that official figures are much to go by.

NKC African Economics said September’s inflation print marks the highest levels since 2010, as a severe shortage of foreign exchange restricts supplies of basic commodities.

According to ZimStat, the main catalyst for the rise in prices was the food and non-alcoholic beverages sub-index that rose by 7,9 percent y-o-y in September.

Considering the major items within the food basket, the prices of bread and cereals rose by 6,3 percent on an annual basis, with the price of meat increasing by 11,8 percent y-o-y in September.

Looking at some of the other largest sub-indices comprising the overall consumer price index (CPI), the housing, water, electricity, gas and other fuels sub-index decreased at a slower pace (-0,5 percent y-o-y) in September, but the transportation sub-index recorded a 1,5 percent y-o-y upsurge in the same month.

That said, NKC said there continues to be growing consensus that Zimbabwe’s inflation figures are understated because they do not accurately reflect the change in consumers’ consumption patterns.

“The big reason for this is due to the large informal economy — which officials recently tried to account for when they rebased the country’s GDP, resulting in a GDP increase of more than 40 percent — that has manifested itself as a result of the currency shortage,” NKC analyst Jee-A Van Der Linde said.

“Essentially, the inflation print fails to account for the widening ‘black-market premium’ and therefore does not show the actual rate at which prices are rising in the informal market.”

Local economic commentators believe inflation is far higher than currently stated, while proponents of the purchasing power parity (PPP) index feel it can be used to paint a clearer picture of the actual inflation environment.

It has become increasingly difficult to accurately measure Zimbabwe’s CPI inflation, partly due to the view that monetary officials have not been able to consistently release reliable data since the days of hyperinflation.

Furthermore, Zimbabwe has been significantly underestimating the level of inflation — something Chris Mugaga, the chief executive of the Zimbabwe National Chamber of Commerce, has acknowledged.

To make matters worse, key inputs such as food, fuel and electricity are in short supply again, supermarkets in the capital are running out of stock and some local fast-food outlets have closed their doors citing difficult times.

That said, a bumper maize harvest in 2017 should offset price pressures somewhat this year.

Panic buying and hoarding has become the new normal, while increased demand for forex will likely lead to higher prices.

The impact of Zimbabwe’s precarious inflation environment is also visible on the stock market, with share prices skyrocketing as investors seek out equity investments to preserve value in the face of the depreciating bond notes — akin to the period late last year, when investors hedged against currency devaluation by investing heavily in local equities.

In response, Central Bank governor John Mangudya said Zimbabwe has enough foreign exchange to pay for imports of fuel, wheat and other items, and that the crash in bond notes is caused by “opportunists” trying to sow “unnecessary panic and despondency.”

According to the most recent Treasury report, annual broad money increased by 40,8 percent y-o-y in June, signalling added pressures on inflation.

Linde said it is just about impossible to keep up with the myriad of economic setbacks, with the currency issue remaining at the forefront.

On the one hand you have a severe shortage of foreign exchange, which means there is not enough money for wheat, maize, fuel, essential medicines, or electricity imports, and on the other you have a liquidity shortage which results in US dollar hoarding and precipitates panic buying, thus creating an enormous imbalance in the economy, hence the growing informal market, which in turn makes it impossible to accurately measure business activity.

Linde said: “Delving into the dynamics of Zimbabwe’s actual inflation opens up a Pandora’s box of considerations.

“While we closely follow Zimbabwe’s CPI, we do not regularly unpack official CPI releases due to the fact that current official figures simply do not reflect current buying power.

“What makes this even more concerning is the fact that policies are supposed to be formed around these figures, which in turn raises questions on the appropriateness of government policies.” DailyNews