Inflation rises to 0.78pct in September; still too low


HARARE,- Zimbabwe’s annual inflation for September stood at 0.78 percent after gaining 0.64 percent on the August 2017 rate of 0.14 percent, the statistics agency reported on Monday.

Month on month, the inflation rate rose by 0.51 percentage points to 0.38 percent, Zimstats said. Zimbabwe has maintained a single digit inflation figure since 2009.

Disinflation and possible deflation appear to be the greatest threat for Zimbabwe at a global macro-economic level.

The  International Monetary Fund (IMF) has since 2014 said Zimbabwe’s inflation to remain too low

 

Low inflation has its own advantages and disadvantages. For instance, low inflation normally reflects general price stability which is a requirement by most governments in promoting economic growth.

Whilst this may be true, the key question to address relates to whether low inflation levels are as a result of sound economic policies or just a symptom of a disease. For the Zimbabwean economy, the low inflation reflects a bigger problem entrenched in the economy. This is because it has been due to tight liquidity conditions which have led to a decline in demand for most products and services.

Also, company closures, low profitability and losses, declining or sticky disposable incomes and retrenchments have also resulted from the liquidity monster.

Thus the low inflation signals a bigger problem for Zimbabwe and is one of the reasons why economic growth has stagnated.

Most economies use monetary and fiscal tools to address inflation and economic growth issues. Policymakers locally cannot make use of monetary tools such as printing money or altering interest rates due to the use of the bond note which reflects on par value to the United States dollar.

IMF has always said a closer look at the Consumer Price Index components showed that deflationary pressures have been stronger in traded sectors suggesting that pass-through from a depreciating Rand also played an important role.

“On the upside temporarily falling prices benefit consumers with job security. By delivering a boost to aggregate demand, falling prices may contribute to eroding the country’s negative output. Deflation could also correct the existing overvaluation in the real exchange although that would require a process of non-traded inputs and final goods to fall faster that the prices of traded goods which has been the case so far,” IMF said.

It said deflation may increase the burden of existing debt in the country which was already under financial stress. Zimbabwe’s both domestic and external debt now stands at $9,9 billion according to official statistics.

The country owes creditors that include the IMF, World Bank and the Paris Club among others.

The Bretton Woods institution said deflation would hurt producers and might reduce the country’s capacity to produce as it leads to widespread company downsizing and closures due to downward wage rigidity.

Zimbabwe first registered deflation this year in February of -0,49 since the use of the multi-currency regime in 2009.