HARARE – Zimbabwe is targeting an annual inflation rate of between two percent to three percent this year, in line with the regional benchmark, after a two-year deflation streak was snapped in February.
Reserve Bank of Zimbabwe governor John Mangudya on Wednesday said although inflation is expected to remain in the positive territory throughout this year, he wants to keep it within the Southern African Development Community inflation benchmark of between three percent to seven percent.
“I am happy that inflation is now in the positive territory because we have been in deflation for over two years now and there was a huge risk if we had remained there (in deflation) we would have descended into recession,” he said.
Mangudya, however, said the bank will continue to monitor and manage downside risks to inflation emanating from domestic factors particularly the pass-through effect of fiscally-induced foreign currency shortages on premiums and multiple pricing practices in the domestic economy.
Zimbabwe’s annual headline inflation rate, which had been in deflation since September 2014, moved into positive territory from –0,65 percent in January 2017 to 0,31 percent in June 2017 as a result of the expansionary fiscal policy stance which saw fiscal deficit rising to $1,4 billion in 2016.
Mangudya said the deficit — which emanated mainly from drought-related expenditures, legacy debt and agricultural expenditures — was mainly financed from domestic sources through the issuance of treasury bills and reliance on the Reserve Bank overdraft facility.
This increased the quantity of money in circulation.
The central bank governor’s inflation targets are also in line with the International Monetary Fund and World Bank’s forecast of three percent this year.
However, international think-tank NKC Research has a more conservative view, projecting inflation to average roughly one percent this year.
Statistics from the central bank show that year-on-year food inflation accelerated sharply from –0,30 percent in January 2017, to 1,92 percent in May 2017.
The surge in food inflation was attributable to intermittent food shortages before the harvesting period, which began in April 2017, as well as to production constraints in the food manufacturing industry.
Annual food inflation, however, decelerated from 1,92 percent in May 2017 to 1,82 percent in June 2017, reflecting the increased output of grains.
Presenting his mid-term Monetary Policy Statement Mangudya said the 2016/17 bumper harvest is expected to dampen food prices.
“On account of the good agriculture season, significant price declines were recorded for bread and cereals, meat, fruit, vegetables, oils and fats, and milk, cheeses and eggs in June 2017,” he said.
Annual non-food inflation moved into positive territory, increasing from –0,82 percent in January 2017 to 0,08 percent in April 2017, before peaking at 0,21 percent in May 2017.
The increase was driven by firming South African rand and international oil prices.
The recent fall in international oil prices and softening of the rand, however, induced deflationary pressures which resulted in annual non-food inflation receding back into negative territory to –0,37 percent in June 2017. – Daily News