Monthly inflation goes negative
Monthly inflation went negative last month to -1,6 percent, meaning prices fell on
average, according to ZimStat, the national statistics agency, using the new weighted
consumer price index that takes into account the different currencies used in
transactions.
The negative month-on-month inflation would have arisen from a combination of
almost no changes or even a fall in prices in Zimbabwe dollars, coupled with a fall in
prices when measured in US dollars, common at this time of the year when fresh food
tends to be in plentiful supply as farmers start reaping the first fruits of good rains.
The large bulge of price rose earlier last year peaking in June, and still included in the
annual figures, shows that the annual rate of inflation was still high at 92,3 percent
under the weighted average, with prices in food over the 12 months between February
last year and last month being significantly higher at 136,9 percent than the 68,1 percent
seen in non-food items.
Food prices dominate the formulas used in ZimStat calculations so major shifts in food
prices have the largest effect on inflation rates.
Last month food prices fell on the weighted average by 1,6 percent and this was reflected
in the final fall of 1,6 percent on all items.
Annual inflation will start falling fast after next month as that five month spike in
monthly inflation between May and August last year disappears from the calculations.
Zimbabwe has switched to the weighted rate of inflation for measuring inflation for all
official purposes.
This was given legal force on Friday in Statutory Instrument 27 Census and Statistic
(General) Notice 2023 gazetted by Minister of Finance and Economic Development
Mthuli Ncube.
The notice first defines the “rate of inflation” as “the general increase in price levels of
goods and services measured as a weighted average based on the use of Zimbabwean
dollars and United States dollars over a given period of time”.
The Minister then makes this the legal inflation rate with the second and final sentence
of the notice.
“The dissemination of inflation rates with effect from the date of publication of this
notice shall adopt this method of measuring inflation.”
In its explanatory note on the release of last month’s inflations rates ZimStat explains
that it records the prices of a wide range of items each month in both Zimbabwe dollars
and US dollars.
It then does the number crunching in each currency to produce two sets of indices for
consumer prices, both recording rises and falls on the 2020 prices, set as 100 index
points.
This number crunching brings together the several thousand prices recorded each month
by the ZimStat team from urban supermarkets, markets, hardware stores, schools,
health services, restaurants, alcohol, transport and the other things people spend money
on.
The formula then weights each category, with food and non-alcoholic drinks being the
largest single category, and then produces the final table of indices in each currency.
These weights are the result of ZimStat surveys which ask a large number of randomly
chosen households in a wide range of income categories to record their monthly
expenditure.
The surveys are then reduced to the ultimate average family, one which spends 31,30
percent of its spending on food and non-alcoholic beverages, 27,62 percent on housing,
water, electricity, gas and other utilities, 8,39 percent on transport and so on down an
ever decreasing list until 1,08 percent on restaurants and hotels.
Even this ideal household averages out spending over several months for many items
such as clothing or school fees.
In the next stage, now he legal requirement, ZimStat takes the best estimate of what
percentage of spending is done in each currency and then works out a second set of
weighted averages for each category and for the final totals according to the currency
distribution. At the moment the estimate is around 70 percent of all transactions are in
US dollars and 30 percent in local currency.
This double set of weighted averaging now produces the final consumer price indices,
and ZimStat in the last stage then works out the percentage increase or decrease over the
last month and over the last 12 months.
As a little extra it also works out the average monthly inflation so far this year, with the
0,7 percent increase in January prices and the -1,6 percent fall in February prices
producing a -0,5 percent mean month-on-month price change this year so far, so far
this year prices have been falling, on average.
The Reserve Bank of Zimbabwe in the 2023 Monetary Policy Statement recommended the
switch to the currency weighted consumer price index and so weight inflation rates to
give a more accurate picture of just what is happening in the real Zimbabwean economy
than a reliance on a single currency rate, either US dollars or Zimbabwe dollars, would
produce.Minister Ncube’s notice last week showed that he accepted the recommendation
and then gave the appropriate instructions.
ZimStat has been doing this currency weighting all along since at least 2020, issuing
both a Zimbabwe dollar consumer price index and what it was calling the “blended
consumer price index”, so it is not a stranger to the new system.
The huge price fluctuations and jumps seen between April and August last year, that
spike on the graph, are still very noticeable and very high in the weighted inflation rates
as well as in Zimbabwe dollars.
The June peak was still a monthly inflation rate of 18 percent with rising high rates in
April and May and then falling but still high monthly inflation in July and August before
sanity was restored from September.
That spike in prices was largely the result of black market currency speculation and many
traders looking at possible future exchange rates set by speculators.
The fact that the weighted average still produced a steep spike shows that even US dollar
prices must have been rising at rates well above American inflation rates.-The Herald
