Inflation slowdown to continue

As largely expected, the inflation rate for August was significantly lower than that of July as economic players are now pricing their goods and services in line with developments on the official foreign currency exchange rate.

While some products and services are still being priced above the auction system determined exchange rate, price movements have all the same stabilised and in some cases coming off.

The month-on-month inflation rate in August 2020 was 8,44 percent shedding 27,09 percentage points on the July 2020 rate of 35,53 percent.

This means that prices, as measured by the all items CPI, increased by an average rate of 8,44 percent from July 2020 to August 2020.

This is after eight of the twelve broad expenditure categories showed single digit inflation. Between them, these expenditure categories account for 78 percent of total household spending.

The month-on-month Food and Non- Alcoholic Beverages inflation rate stood at 6,3 percent in August 2020, shedding 31,69 percentage points on the July 2020 rate of 37,99 percent.

However, the month-on-month non-food inflation rate stood at 10,03 percent, shedding 23,73 percentage points on the July 2020 rate of 33,76 percent. The month-on-month Alcoholic Beverages rate stood at 9,61 percent with beer inflation rate at 12,41 percent.

The CPI for the month ending August 2020 stood at 2 123,97 compared to 1 958,72 in July 2020, and 246 68 in August 2019.

Meanwhile, the widely used year-on-year inflation rate (annual percentage change) for August 2020 as measured by the all items Consumer Price Index (CPI) stood at 761,02 percent.

This means that prices as measured by the all items CPI increased by an average of 761,02 percent between August 2019 and August 2020.

Analysts attribute the significant slowdown in the rate of price increases to tight control of expenditure by the treasury, the central bank’s monetary targeting as well as the increased confidence in the auction market.

Before the establishment of the foreign currency auction trading system, economic players had resorted to the forward pricing of their products due to the uncertainties around the exchange rate.

The auction system has, however, brought some form of stability as it has so far guaranteed businesses access to foreign currency at a stable exchange rate.

In a note, economist John Robertson described the slow down inflation as “encouraging” and a “welcome correction”.

“The currency auction exchange rate, having varied very slightly since the beginning of August, has impacted helpfully on the August inflation rate and the modest strengthening of the auction rate in the three September auctions . . . seem likely to assist this encouraging trend,” Robertson said.

He hoped that “a similar correction to the CPI calculations will bring about a fall in the index number for September.”