Mthuli Ncube wages war against surging inflation

Zimbabwe’s annual inflation has risen to a 10-year high since hyperinflation, but month-on-month prices are beginning to drop as monetary reforms aimed at combating inflation, addressing foreign currency shortages and price distortions take hold, with little pressure on the Central Bank to tighten policy further.

The year-on-year inflation rate shot up to 59,4 percent in February, the highest annual level since hyperinflation more than a decade ago, statistics agency Zimstat said, from 56,9 percent in January, but the price of goods and services dropped by 1,67 percent month-on-month in February, down from 10,8 percent in January.

Finance minister Mthuli Ncube is excited by the new trajectory of the monthly inflation graph, and said he was aiming for inflation to dip below the Central Bank’s target of 10 percent, offering some relief to consumers who have tightened their belts since the advent of his austerity measures in October.

Ncube has said his policies of restructuring and reforming Zimbabwe’s economy were beginning to be felt with the month-on-month inflation maintaining a downward trend from here, a crucial marker of economic stability that he touted as a direct result of his reforms.

He claims things are getting better, even as the country is in the throes of intensifying fuel and foreign currency shortages.

“It is vital that economic agents, investors, consumers, and indeed policymakers focus their attention on month-on-month inflation developments rather than year-on-year,” the Cambridge University-trained economics professor said, referring to month-on-month inflation which slowed down to 9,2 percent and 9,0 percent in November and December 2018, respectively, slightly increasing to 10,75 percent in January 2019 and now dropping marginally in February.

“Monthly inflation in #Zimbabwe falls dramatically to 1,7% in February 2019, compared to 10,8% in January 2019. As projected in the economic reform programme, the Transitional Stabilisation Programme, monthly inflation should continue on a downward trend as reforms kick in,” Ncube said on Twitter from a roadshow he is embarking on in the US to highlight reforms he has enacted to make Zimbabwe a prime destination for foreign direct investment and attract more American investors and companies.

Ncube met officials at America Chamber of Commerce in Washington DC last week, as President Emmerson Mnangagwa left for Abu Dhabi, the capital of the United Arab Emirates yesterday to seek a financial bailout package from the oil-rich nation.

Critics say Mnangagwa’s need for a bailout is now desperate given Ncube’s failure to secure even one line of credit since his appointment as Finance minister last September.

Financial research firm Equity Axis said “the 1,67 percent growth could be a reflection of the uncertainty that the market had in anticipation of the RBZ presenting the MPS (Monetary Policy Statement) which fell on the 20th of February which was after collation of data.”

“The growth rate may accelerate again after factoring in the changes that were implemented in the MPS, which relaxed the exchange rate to a start-off rate of 2,5 times, and has since grown to 2,7 times,” said the leading research firm.

Central bank governor John Mangudya has unveiled monetary measures that include the liberalisation of foreign currency exchange through the introduction of the inter-bank foreign currency exchange market, demonetisation of RTGS balances, bond notes and bond coins into a virtual currency, RTGS dollar.

“The use of RTGS dollars for domestic transactions will eliminate the existence of the multi-pricing system and charging of goods and services in foreign currency within the domestic economy,” Mangudya said.
“In this regard, prices should remain at their current levels and or to start to decline in sympathy with the stability in the exchange rate given that the current monetary balances have not been changed.”

Appearing before the Tendai Biti-led parliamentary portfolio committee on Public Accounts two weeks ago, Mangudya expressed optimism that the average rate of inflation will tumble to around 10-15 percent, as the Bank seeks to effectively effect value preservation through inflation targeting.

There are inflationary headwinds, however, with Postal and Telecommunications Regulatory Authority of Zimbabwe (Potraz) moving to approve a request by Mobile Network Operators (MNOs) for a tariff hike in light of movement in the exchange rate as determined on the inter-bank market, and talk of an electricity hike that has been dismissed by the State power utility, and plans by bakers to hike the retail price of bread to RTGS$2,70 per loaf.
Experts said a combination of these factors among others will likely drive inflation further upwards contrary to government’s own projections.