Inflationary pressures continue to pile on businesses
Although the economy is projected to grow by 5,5 percent this year, listed companies are concerned by waning disposable incomes due to inflationary pressures that will weigh on aggregate demand.
During the second quarter of this year, the economy experienced significant rise in inflation due to the devaluation of the local currency, which is now pegged at $325 against the US dollar on the Reserve Bank of Zimbabwe weekly foreign currency auction market, while trading at a premium of between $450 to $500 on the parallel market.
According to figures from the Zimbabwe National Statistics Agency (ZIMSTAT), May 2022 all items year on year inflation hit a three-digit figure since June 2021 to 131,7 percent putting pressure on consumer spending.
Now, Dairibord has indicated the increase in cost of imported inputs has also given rise to imported inflation weighing on businesses already competing for limited consumer spending.
The group acknowledged in an update that: “Erosion of disposable incomes (is) negatively impacting aggregate demand.”
For the food and dairy processor, continued high cost of raw milk, raw and packaging materials, utilities, fuel and labour contributed to cost push during the period to May 31, 2022.
With no immediate solution to the inflation challenge, coupled with global shocks, experts forecast the rate of inflation to remain on an upward trajectory in the short to medium term with the country likely to miss the projected rate.
In the 2022 Monetary Policy Statement, the Reserve Bank of Zimbabwe (RBZ) projected that the country’s rate of annual inflation will end the year at between 25 percent and 35 percent.
Industry lobby group, the Confederation of Zimbabwe Industries (CZI) also indicated inflation would be a threat to businesses and growth prospects.
Clothing retailer, Truworths company secretary Brenda Chibanda said the regulatory environment and the deteriorating economic environment will continue to be a hindrance to normal trading with low disposable incomes negatively impacting on businesses.
“The lag in consumer income growth relative to increased inflationary pressures will reduce consumer disposable,” she said, adding the “managed exchange rate” for local US dollar sales will have a negative impact on financial performance.
The business has therefore undertaken to reduce exposure in credit sales due to the resurgence of inflationary pressures.
While businesses benefitted from the convenience of the multi-currency trading environment and the higher spending velocity of the local currency as consumers sought to mitigate value erosion in their hands of late, the environment is expected to remain challenging.
For beverages giant, Delta- the group recorded growth in earnings for the year to March 2022 on strong volume performance across segments. But chairman Stanford Moyo also highlighted the environment was likely to remain tough, worsened by global shocks and natural disasters.
He said: “The operating environment in the country remains complex and challenging, reflecting the impacts of sometimes conflicting transitional policies and the exogenous shocks arising from cyclones and the Covid-19 pandemic.
“The resurgence of inflation and the renewed volatility of the exchange rate in the second half of the year have dented business confidence. The management of foreign exchange market remains a key area of opportunity for the country to achieve macroeconomic stability and sustainable growth.”-eBusiness Weekly
