Finance and Economic Development Minister Mthuli Ncube said the increase in inflation over the past few months is attributable to speculative pricing by retailers who were benchmarking their prices to parallel market rates.
Presenting the 2020 Mid-term budget review, Ncube said following the introduction of the auction system, retailers are now correcting their prices to be in line with the auction determined exchange rate. He said:
Inflationary pressures which subsided in the last quarter of 2019 and in January 2020, resurged from February 2020 to June 2020.
The surge in annual inflation is attributed to speculative pricing, arising from forward pricing practice and adverse inflation expectations, following the depreciation of the Zimbabwe dollar against major currencies in the parallel market.
Retailers were benchmarking their prices to these parallel rates prior to the introduction of the auction system, which they are now correcting in line with the advent of the auction determined exchange rate.
Ncube said inflation is expected to fall in the second half of 2020 from the from a peak of 785.5% in May 2020, to 300% in December 2020. He said:
Similarly, month-on-month inflation, which had declined from 16.55% in December 2019 to 2.23% in January 2020, rose to 26.59% in March 2020, before receding to 15.13% in May 2020.
However, inflation is expected to gradually decline in the second half of 2020, from a peak of 785.5% in May 2020, to 300% in December 2020, responding to current monetary and fiscal policy interventions.
The projected annual inflation is consistent with reducing the month-on-month inflation from 31.7% in June 2020 to around 5% in the last quarter of 2020.