Zimbabwe Central Bank still optimistic about low inflation





HARARE – Reserve Bank of Zimbabwe Governor, Dr John Mangudya, remains confident authorities will be able to maintain a lid on prices to curtail potential relapse into runaway inflation, following worrying increases in December and January.

The monthly inflation rate surged by 4,22 percent in December last year and skipped 5,43 percent last month, latest figures released by the Zimbabwe National Statistics Agency (Zimstat) show, raising a spine-chilling spectre of possible sustained inflation run.

Monetary authorities are targeting monthly rate below 1 percent starting this month, meaning slight to no price hikes, and annualised rate below 10 percent by year end.

On an annualised basis, the Zimstat said prices of goods and services in Zimbabwe have increased by an average of 362,63 percent in 12 months period spanning January 2020 and January this year.

Annual inflation reached a post dollarisation high of 837 percent last year, before trending down to current levels, owing to a coterie of far-reaching policy interventions implemented by the Government.

Numbers from Zimstat show that producer price inflation has surged, especially in December, which possibly explains the frequent price increases noted of late.

However, Dr Mangudya said in an interview that the apex bank will maintain an iron-clad grip on money supply growth, to contain the seemingly bulking inflationary pressures.

Dr Mangudya said the price hikes noted, especially in December, were driven by overly strong demand ahead of the festive season.

The central bank chief also agreed with the possibility that the spate of increases in rates and fees for various services, including those provided by city councils, Zinara, power utility Zesa and fuel price hikes in the intervening period were partly to blame.

But the RBZ governor suggested that an expected good harvest this year should help lower the negative effect of imported inflation, as availability of local goods improves.

Dr Mangudya said Zimbabwe has suffered from the negative effect of imported inflation, amid global price increases due to production, supply, value chain and trade disruptions from Covid-19.

He said Zimbabwe had borne the full impact of disruptions to global trade due to the perennial problem of low levels of domestic production.

His remarks come against the backdrop of surges in the monthly inflation rates noted in December and January, which threatened to unleash galloping inflation, which had largely been under control for most of 2020.

Between February 2019 and June 2020, when the Reserve Bank introduced the forex auction system, Zimbabwe had witnessed rapid increases in inflation, reminiscent of the ill-fated decade to 2008.

At the height of the inflation rampage, when annual inflation reached 231 million percent, at the last official count in June 2008, Zimbabweans lost all savings with local currency rendered virtually valueless.

“We believe we will still be able to achieve our inflation targets for the year, below 1 percent for the rest of the year and single digit figure by end of the year,” Dr Mangudya said.

“The price increases noticed in December last year were largely a result of high demand for goods towards the festive season.

“But we have also suffered from the effects of imported inflation due to trade restrictions caused by the Covid-19 pandemic, and as I have always highlighted we need to produce more locally,” Dr Mangudya said.

Economist Eddie Cross, thinks notable growth in money supply in the last quarter of 2020 appeared to give impetus to price adjustments, after liquidity and demand grew.

Confederation of Zimbabwe Industries CZI president Henry Ruzvidzo, said a number of decisions that have been taken in the past few months have had an impact on the general pricing of goods in the economy. 

He cited the extending of the intermediated money transfer tax to include nostro transfers, upward adjustment of foreign currency surrender thresholds across all economic sectors, the 20 percent surrender on nostro transfers and general upward adjustment of statutory payments, which had lagged behind exchange rate movements.

He also pointed out the adjustment of electricity tarrifs, council rates and toll gate fees adjustments, as contributory factors. 

“In addition, international supplies have increased in price due to the Covid-19 supply chain disruptions and the recent fuel increase is attributed to international price movements. 

“The currency reform process has not tamed the disparity in rates which has persisted and has recently widened. Stability of prices is important for growth of businesses a return to instability is highly undesirable,” Mr Ruzvidzo said.

Confederation of Zimbabwe Retailers president, Denford Mutashu, last week attributed price increases to limited supply, lack of competition due to closure of some entities, opportunism and profiteering by the few businesses allowed to remain open during the lockdown period.

He suggested the need for Government and industry to work together in supporting the production of about 17 basic goods to prevent shortages and prices increases in the middle of a ravaging pandemic. – Herald