Inflation slows, threatens to rear ugly head again
As largely expected, Zimbabwe’s annual inflation rate fell to the lowest level in close to three years in August, but the scourge threatened to rear its ugly head again.
The year-on-year inflation rate for the month of August 2021 as measured by the all items Consumer Price Index stood at 50,24 percent down from 56,37 percent in July 2021.
However, the month on month inflation rate in August 2021 was 4,18 percent gaining 1,62 percentage points on the July 2021 rate of 2,56 percent. This is the highest monthly inflation rate since January this year when inflation stood at 5,4 percent.
While inflation is always and everywhere a monetary phenomenon, according to American economist Milton Friedman, the Reserve Bank of Zimbabwe (RBZ) is on record saying unavoidable shocks to international food and administered prices such as higher freight rates is also a major contributor to current price instability. In revising its inflation rates
from the previous year-end rate of 10 percent to 25 and 35 percent, the central bank said deviation from the initial end period forecast was due to unavoidable shocks to international food and administered prices.
“The recent sharp increase in international food prices has already slowly started to feed into domestic consumer prices in some regions as retailers, unable to absorb the rising costs, are passing on the increases to consumers,” said the RBZ in its Mid-Term Monetary Policy Statement.
“International food prices are expected to increase by about 25 percent in 2021 from 2020, before stabilising in 2022. A pass-through of 20 percent (13 percent in the first year and 7 percent in the second) would, thus, imply an increase in consumer food price inflation of about 3,9 percentage points and 2.1 percentage points on average in 2021 and 2022,
respectively for Zimbabwe.
“An additional one percentage point to the 2021 global consumer food inflation could be added by the higher freight rates,” reads part of the Mid-Term Monetary Policy statement.
Other market watchers, however, attributed high inflation levels on an unstable parallel market exchange rate which spent the better part of August between 140 and 150 to the greenback. The official exchange rate was below 86 throughout August, making little impact, if any, on prices.
Many economic players in the country have been using parallel market rates to price their goods and services, driving inflation up.
According to economists, the country’s monthly inflation rate will have to stay below 3 percent to close within the RBZ’s targeted range.
For annual inflation to remain on a downward path as it did in August month on month inflation for the rest of the year should be below 3,8 percent for September; 4,4 percent for October; 3,2 percent for November; and 4,2 percent for December. But for it to close within the targeted range of between 25 and 35 percent, month-on-month inflation should fall below 3 percent or much lower. But with the widely used parallel market exchange rate heading north, with street money changers quoting rates as high as 160 yesterday, monthly inflation levels could close the year above the target range.
In a note to clients, economist John Robertson said the 4,19 percent increase this month can be attributed mainly to the movement in the black market exchange rate to around $140:US$1, “so a further weakening of the black market rate in the coming months could prevent the annual inflation rate from falling”.
“Official mention has been made of the need to eliminate the currency black market, but so far the attempts made to bring it under control have failed.”
In August, consumers felt the most inflationary pain in the purchase of non-food items with the month-on-month non-food inflation rate at 4.95 percent, gaining 2,35 percentage points on the July 2021 rate of 2.60 percent.-ebusinessweekly.co.zw
