Fresh inflationary pressures fuel new wave of price hikes

LIVINGSTONE MARUFU

A sharp rise in fuel prices has triggered fresh inflationary pressures across the economy, driving up the cost of goods and services and eroding recent gains in price stability, multiple economists have said.

Zimbabwe’s annual ZiG inflation rate rose by 0,6 percentage points to 4,4% in March, up from 3,8% in February, according to the Zimbabwe National Statistics Agency (ZimStat). The uptick reflects mounting cost pressures in an economy highly sensitive to fuel movements.

The Zimbabwe Energy Regulatory Authority (ZERA) increased pump prices during the month, pushing petrol to US$2,17 per litre and diesel to US$2,05, from US$1,71 and US$1,77 respectively, effectively transmitting global oil shocks into domestic prices.

Economists say the fuel shock has already begun feeding through the economy via transport, logistics, manufacturing, and retail pricing channels, with further increases expected if global oil markets remain volatile.

Economist Tony Hawkins said the inflation uptick was an inevitable consequence of sharp fuel increases and warned of deeper second-round effects still to come.

“The increase in inflation was inevitable with fuel prices up 40%. Since then global prices have risen another 15% to about US$116 a barrel, which means more price rises are in the pipeline. The impact on prices will depend on how long the war lasts and how much it intensifies and draws in other nations,” Hawkins said.

He cautioned that the Reserve Bank of Zimbabwe’s (RBZ) short-term inflation outlook was overly optimistic, arguing that it failed to account for persistent second-round effects.

“The RBZ’s three-month estimate is very optimistic and also bad economics because it ignores second-round effects of an oil price shock, which are always longer lasting and more general in an economy than oil and gas prices on their own,” he said.

Hawkins added that such effects tend to be “sticky downwards”, meaning prices rarely retreat once they rise.

“That is the lesson of the last 50 years since the 1973 oil shocks worldwide. The RBZ’s inflation forecasts will be wrong and we are likely to be back to double-digit inflation in the third quarter,” he said.

He further argued that conventional monetary tools would have limited impact in the current environment, warning that policy responses risk unintended consequences.

“Controlling money supply and manipulating the exchange rate artificially, as the RBZ is doing at present, will not be effective in tackling imported inflation. Zimbabwe has endured decades of high inflation and bouts of hyperinflation, leaving its price level structurally high and its economy uncompetitive,” Hawkins said.

He added that while interest rates are typically used to curb inflation, Zimbabwe’s real rates are already elevated, limiting policy space.

Another economist Vince Musewe said the authorities had little control over externally driven price pressures.

“Imported inflation is a huge challenge because you cannot control it if you are a price taker,” Musewe said.

Malone Gwadu, another economist, said global developments have placed Zimbabwe’s monetary framework under strain, undermining assumptions in the 2026 policy framework.

“The conflict in the Middle East is an exogenous variable that is driving up fuel costs and causing cost-push inflation across the economy as businesses pass on increased costs to consumers. We are now in an inflationary environment in US dollar terms, which puts monetary authorities in a tight position,” Gwadu said.

He said short-term policy responses could include easing interest rates and reassessing fiscal tools such as fuel taxation.

“Lowering interest rates could reduce costly lending, while tax reductions and levy adjustments could cushion citizens. The current fuel tax framework needs to be relooked at to reduce the net cost of fuel to consumers,” he said.

Yet another economist Titus Mukove said the inflation spike reflects Zimbabwe’s vulnerability to global oil shocks but argued that policy coordination could help contain pressures.

“The recent increase in inflation to 4,4% is largely attributed to global fuel price hikes driven by geopolitical tensions. This has increased import costs and pushed up prices of goods and services,” Mukove said.

He said maintaining tight monetary policy, enforcing fiscal discipline, and promoting energy diversification were key stabilisation measures.

He also cautioned against rigid exchange rate management, arguing that greater flexibility would help absorb external shocks.

“Allowing market forces to determine the exchange rate is critical. Interference creates distortions and worsens inflationary pressures,” he said.

Enock Rukarwa, another economist said persistent geopolitical tensions could continue to weigh on inflation but noted some easing in global sentiment.

“If the conflict persists, we may see continued pressure on inflation. However, there is now some global consensus towards cooling tensions, which could soften the impact,” he said.

He said government may need to consider temporary subsidies and accelerate alternative energy strategies, including ethanol blending and renewable energy investments, to reduce dependence on imported fuel.

The Confederation of Zimbabwe Industries (CZI) warned that businesses would inevitably pass on higher fuel costs to consumers, further accelerating price increases.

Already, bread prices have risen by an average of 10%, while authorities are yet to confirm broader increases in staples such as mealie-meal, cooking oil, sugar and meat products. Transport operators have also adjusted fares in response to rising operating costs.

Cabinet has acknowledged the inflationary pressure and approved a review of selected, time-bound fuel taxes, while also considering increasing ethanol blending in petrol from E5 to E20 in a bid to reduce pump prices.