Prices of goods continue to go up

A woman shops in a supermarket in Harare, Zimbabwe May 20, 2017. REUTERS/Philimon Bulawayo
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Prices of mostly basic commodities have significantly gone up over the past month, with analysts blaming it on exchange rate developments. A survey by the Daily News yesterday showed that prices of basics have gone up by between 20 percent and 100 percent, thus overburdening the cash-strapped consumer.

For instance, a two-litre bottle of cooking oil, which was selling at around $7 has increased to $11, 49, while two kilogrammes (kg) of flour now retails at $7, 19 from $5, 45. A 2kg packet of rice has also gone up from $5, 70 to $6, 49, with a kg of salt fetching $1, 89 from $1.

The price of sugar has also gone up from $2 per 2kg to $5, 29 with 10kg of mealie-meal now going for $9, 99. Following the latest price increases, many are expecting the cost of living to shoot through the roof. In December last year, the Consumer Council of Zimbabwe said the food basket had increased by 9, 7 percent from $211, 68 at the end of October 2018 to $232, 31 by end of November 2018.

This resulted in the cost of living for a family of six increasing from the end of October 2018 figure of $666, 93 to $697,76 by end of November, translating to an increase of $30, 83 or 4, 6 percent. Analysts said the price increases mirror the movement in the exchange rate following the announcement of the Monetary Policy Statement (MPS) on February 20.

As part of his MPS, Reserve Bank of Zimbabwe governor John Mangudya floated the local unit, which for a very long time had been trading at par against the United States dollar (USD). The liberalisation of the exchange rate, which brought relief to industry, saw the RTGS dollar trading at 2,5 against the USD before depreciating further.

“The price of commodities is a result of the interaction between supply and market demand. Price increases can be best described under two scenarios: when there is a surge in demand and if there is undersupply of commodities,” said economist Kipson Gundani.

“In the Zimbabwean case, we discover that there is what we call pull-demand; there is a lot of liquidity in the market chasing too few goods. This is because since January, some companies have been adjusting their employees’ salaries, which has increased the buying power against disrupted production,” he said.

Due to low levels of production, retailers have been forced to import most basic goods that range from cooking oil, soap and wheat for bread, bringing in the yesteryear memories of the 2008 hyper-inflationary period, where government had to introduce price control measures.  During the period, inflation in Zimbabwe was estimated at 500 billion percent.

Gundani said in the current situation price controls will not be ideal.
“Price controls do not work in practice and theory. There is need to address the supply side constraints to ensure industries produce and the market then sets its own prices,” he said.

President of the Confederation of Zimbabwe Retailers Denford Mutashu said there was price madness in the market, adding price controls will be bad news for the country, considering the precedent set during the 2007/8 era. He also said there was need for the country to produce more than what the market requires in order to curtail high demand for too few goods.

“The economy came to its knees after price controls that were not thought out. Price controls do not and will never work the much they have failed dismally in the past. One of the few solutions to price escalation is to produce more than what the market requires forcing supply to outstrip demand.

“The economy is not producing and conditions under which production is taking place ought to improve also. But the general pricing in the economy resembles madness in some cases.
“A vehicle tyre costs US$110 yet same is selling at R750 across the Limpopo.

Most of the high prices resemble greed bordering on fictitious costing models adopted at dollarisation,” Mutashu said.
The Zimbabwean economy continues to face challenges owing to low production levels as well as inflation and high black market exchange rates.

According to US economist Steve Hanke, Zimbabwe’s inflation is 198 percent, which is however, three times more than the recorded official rate by local authorities. Former Finance minister in the government of national unity Tendai Biti, said the Monetary Policy Statement announced five weeks ago has failed to stabilise the exchange rates.

“It is now five weeks since the monetary policy was announced on February 20. During this period, as we foresaw market disequilibrium has increased with the parallel exchange rate firming up to 4, 5. The fixed exchange rate of 2, 5 has failed & foreign exchange shortage is huge,” Biti wrote on Twitter.