Zimbabwean Central Bank Governor, analysts differ on inflation

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The country’s inflation levels remained elevated in January 2022 at a time the Reserve Bank of Zimbabwe is adamant that inflation expectations have been firmly anchored.

Inflation is the rate of increase in prices over a given period of time and in Zimbabwe, it is measured on a monthly and yearly basis.

In his presentation at CEO Business Meeting held in Harare yesterday, RBZ governor Dr John Mangudya said inflation expectations have been firmly anchored, thus, providing a platform for sustained disinflation.

Disinflation is a temporary slowing of the pace of price inflation and is used to describe instances when the inflation rate has reduced marginally over the short term. Unlike inflation and deflation, which refer to the direction of prices, disinflation refers to the rate of change in the rate of inflation.

Dr Mangudya said despite a temporary resurgence witnessed in the last quarter of 2021 when inflation moved from 50,2 percent in August to 60,7 percent by the end of December 2021, the inflation outlook remains positive.

According to Dr Mangudya, the consumer price index, building materials supply index, producer price index and core inflation, fell in 2021 “suggesting that inflation expectations have been anchored”.

Compared to year 2020 inflation indeed fell from an annual high of 837,5 percent in July 2020 to 50,2 percent in August 2021. 

The trend is expected to continue in 2022 to below 20 percent under the policy scenario, Dr Mangudya reckons.

However, from the last quarter of the year 2021 till now inflation has been on an upward trajectory and would require policy intervention if the RBZ’s 20 percent target is to be achieved.

In January 2022 month-on-month inflation rate was 5,34 percent shedding 0,42 percentage points on the December 2021 rate of 5,76 percent, according to the Zimbabwe National Statistics Agency which released inflation figures on Wednesday.

The year-on-year inflation rate for the month of January 2022 stood at 60,61 percent.

While global factors may continue to add to inflation in 2022, especially high commodity food prices, Zimbabwe’s inflation is also driven by an unstable exchange rate, it, a result of increased monetary aggregates.

The falling local currency, particularly on the parallel market where it is changing hands at between 220 to 250 to the greenback, has resulted in rampant price increases in the economy.

Bread is currently priced at $206 in major retail outlets which translates to US$1,80 at the official exchange rate of $115:US$1.

Using parallel market rates, the bread price would be below US$1.

The central bank has had to resort to moral suasion with the business community.

The RBZ and leaders of the Zimbabwe business community met on 21 January 2022, to deliberate on how to enhance price stability within the economy.

With increased money supply being blamed for fuelling inflation and exchange rate depreciation, Dr Mangudya said the central bank remains committed to “pursuing a strict monetary targeting framework to ensure that money supply does not destabilise the exchange rate.”

He also plans to keep the auction system as a dependable source of foreign currency for bonafide transactions.

Similar measures were implemented in 2021 with mixed outcomes after inflation still finished on an upward trajectory.

Imara Asset Management certainly expects inflation to rise further in 2022 “as base effects fall away and as the auction and parallel rates devalue”.

“In recent weeks, we have seen increases in electricity, fuel, transport, and toll fees. Food prices continue to climb globally.”

For January inflationary pressures were coming from food and non-alcoholic beverages.  Meat inflation was 71.71 percent, vegetables (78.05 percent), Mineral waters, soft drinks, fruit and vegetable juices (77.16 percent) cleaning, repair and hire of clothing (87.00 percent), and gas 95.54 percent. – Business Weekly