Zimbabwe’s year-on-year inflation quickened to 175,66 percent in June from 97,85 percent in May driven by a rise in the price of food and non-alcoholic beverages, official figures obtained from the country’s statistics agency have shown.
The year on year food and non-alcoholic beverages inflation at 251,94 percent whilst the non-food inflation rate was 143,94 percent.
The month on month inflation rate in June 2019 was 39,26 percent advancing 26,72 percentage points on the May 2019 rate of 12,54 percent raising fears that the economy is heading towards hyperinflation.
The hyperinflation was tamed by dollarisation in 2009. The source of Zimbabwe’s hyperinflation was the Reserve Bank of Zimbabwe’s money machine. The government would spend, and the RBZ would finance the spending by printing money.
While dollarisation improved macroeconomic stability, the economy deteriorated in 2015 with high deficits financed through the issuance of Treasury Bills. Exports steadily rose but Zimbabwe remained generally uncompetitive compared to regional peers due to several factors such as high overheads.
Hyperinflation is when prices of goods and services rise more than 50 percent a month. During hyperinflation prices will also be rising daily.
Zimbabwe is facing one of its worst droughts in a decade and this has pushed the price of food commodities up as the economy will now depend on imports.
The current power outages which are now lasting up to 18 hours each day are now pushing production costs as many companies in the manufacturing sector are now relying on diesel which is in short supply. Erratic supplies of fuel across the country are also forcing many to buy the commodity on the parallel market where it is being charged in US dollars.
Government’s decision to introduce the mon-currency system which replaced dollarisation will also have an impact on the inflation outlook of Zimbabwe. Treasury also announced its commitment to settle legacy debts following the monetary reform, a development which will make banks run short of their treasury position.
While key fundamentals such as containing inflation, increasing production and growing exports are yet to be met, questions are already being asked if government will maintain fiscal discipline. In the absence of budgetary support, how will treasury finance some of its major capital projects among its litany of needs that are need of funding. RBZ appears to have no ability in practice to resist the government’s demands for cash.
A relapse of the era of hyper-inflationary era will destroy will destroy Zimbabwe’s economy and push many into abject poverty. The autonomy of the central will be vital in ensuring that the government sticks to its budget.
