HARARE – Zimbabwe’s annual inflation rate has reached triple digits for the first time in five months, driven by multiple devaluations of the local currency.
The blended consumer price index, adopted as the country’s inflation benchmark in February, rose to 175.8% in June compared to 86.5% in the previous month. Prices climbed by 74.5% in the month alone, up from 15.7% in May.
The new inflation gauge reflects the economic reality of Zimbabwe more accurately as it tracks prices in both US dollars and Zimbabwean dollars. The US dollar constitutes 75% of all transactions in the country and is widely used for essential purchases due to its perceived stability compared to the volatile Zimbabwean dollar.
The Confederation of Zimbabwe Industries expressed skepticism about the government’s monthly inflation target of 1% to 3%, stating that achieving it this year is highly unlikely.
The depreciation of the Zimbabwean dollar has been a significant factor in driving inflation. The central bank has loosened controls on the foreign exchange market since May but has not fully floated the local currency to curb volatility and close the gap between the official and black-market exchange rates. The depreciation has led to distorted pricing and a spike in food costs. The Zimbabwean dollar has depreciated by 85% on the official market in the past two months.
The high cost of living and currency weakness are expected to be key issues in the upcoming elections scheduled for August 23. The incumbent president, Emmerson Mnangagwa, will face competition from 10 other candidates.
The central bank’s monetary policy committee raised the interest rate to 150% from 140% on June 6, the highest in the world, to contain inflation. However, further rate hikes have been ruled out to prevent an increase in non-performing bank loans.
The central bank has implemented various measures, including President Mnangagwa’s prohibition on the bank borrowing foreign currency without prior approval from the Treasury, to stabilize the Zimbabwean dollar.
