Zimbabwe Central Bank sees blended inflation in single digits in 2021

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Inflation is expected to drop to double digits next year as the economy converges to a new steady state although there are now heightened stagflation fears.

According to the RBZ, blended annual inflation is forecast to gradually fall to 249% by December 2020 and further to single digit levels by December 2021.

The liquidity mopping effect of the auction coupled with continued restraint on money supply growth is expected to dampen inflationary pressures in the economy culminating to a sustained trajectory in the year-on-year inflation.

As largely expected, annual inflation for August slowed to 761.02% from 837.53% in July as the currency stability seen after the introduction of the foreign currency auction system as business moved away from the parallel market, whose rate was an important economy-wide price signal.

The controversial blended inflation also followed suit closing at 420.91% from 485.27% the previous month.

According to Zimstat, prices still rose but by an average 761.02% over the comparable year ago period. Decline in prices were seen across the majority of weights but more pronounced within the food cluster as adjustments were made to link prices to the auction fx rate. Over the past two years, monetary growth and exchange rate depreciation were the major determinants of the inflationary process.

Annual food and non-alcoholic beverages inflation was at 865.48% from 976.73 weighed down by Bread and Cereals at 769.15% from 967.55 and Fruit which was down to 1 104.60% to 1 323.51%. But there was a marginal increase in Fish and Sea Food to 637.28% from 631.37%.

Increases were also seen under the health cluster in Outpatient services as most adjusted prices in light of the coronavirus pandemic. Paramedical services and Hospital services inflation also increased to 1241.95% and 382.70% from 1 146.80% and 368.02% respectively.

The month on month inflation rate for the month under review was 8.44% losing 27.09 percentage points on the July 2020 rate of 35.53%. The month on month Food and Non-Alcoholic Beverages inflation rate stood at 6.30 percent in June 2020, losing 31.69 percentage points on the July 2020 rate of 37.99 percent.

The month on month non-food inflation rate stood at 10.03 percent, shedding 27.73 percentage points on the July 2020 rate of 33.76 percent. Highest increases were seen in the Education category with University fees going up 155.19%.

Inflation development and outlook

The blended CPI month on month inflation rate in August 2020 was 1.41% shedding 15.24 percentage points on the July rate of 16.65%. The year on year inflation rate (annual percentage change) for the month of August 2020 as measured by all items blended CPI was at 420.91% down from 485.27% a month earlier.

The blended CPI for the month ending August 2020 stood at 101.41 compared to 100.00 in July 2020 and 19.47 in August 2019.

Source – finx