Inflation tamed, but pain remains

BY PHILLIMON MHLANGA
Zimbabwe’s inflation has fallen into single digits for the first time in years, but households and businesses say the cost-of-living crisis is far from over, exposing a widening gap between macroeconomic stability and everyday economic reality
Across Zimbabwe’s industrial areas, factory machines that once ran around the clock now sit idle for extended periods.
Small businesses are dipping into savings to stay afloat. Workers in the private sector and civil servants watch their salaries evaporate before month-end, while families quietly remove basic groceries from shopping baskets as transport, rentals and utility costs continue to rise.
Zimbabwe’s inflation crisis may be easing, but for businesses and households, the economic pain is far from over.
Figures from the Zimbabwe National Statistics Agency (ZimStat) show ZiG annual inflation plunged from 82.7% in September 2025 to 3.8% in February 2026, before edging up to 4.8% in April and easing to 4.4% in May. The decline is particularly striking considering inflation peaked at 95.8% in July 2025.

Source: ZIMSTATS
Inflation measures the rate at which prices increase. A lower inflation rate does not mean prices are falling, it simply means they are rising more slowly than before. As long as inflation remains positive, the overall price level continues to climb.
Zimbabwe is therefore experiencing disinflation rather than deflation.
Disinflation is a slowdown in the rate of inflation. Prices continue to rise, but at a slower pace than previously.
Disinflation is primarily caused by factors that reduce demand in the economy or ease price pressures.
Tight monetary policy, including higher interest rates and slower growth in the money supply, reduces borrowing and spending by consumers and businesses, leading to weaker demand for goods and services.
Liquidity shortages can have a similar effect by limiting the amount of money available for spending and investment. Weak consumer purchasing power, often driven by stagnant incomes or economic uncertainty, can also restrain demand and make it difficult for businesses to continue raising prices.
Exchange-rate stability or appreciation helps lower the cost of imported goods and production inputs, reducing inflationary pressures.
Lower fuel, energy and commodity prices can further ease production and transport costs, while improvements in supply chains and increased production can boost the availability of goods, helping to moderate price increases. Fiscal restraint by governments, through reduced spending and lower budget deficits, can also dampen demand in the economy.
Together, these factors slow the pace at which prices rise, resulting in disinflation.
Deflation, by contrast, occurs when the general price level actually falls, meaning prices decline rather than increase.
At the household level, slower inflation has not translated into meaningful relief.
For example, a worker earning the equivalent of US$600 per month may still spend about US$250 on rent, another US$200 to US$250 on food and groceries, and much of the remainder on transport, utilities and school fees, leaving little room for savings or discretionary spending.
As a result, households continue to trim shopping baskets and postpone non-essential purchases, further weakening demand across the economy.
“The easing of inflation is welcome, but consumers are not yet feeling meaningful relief in their pockets. Prices of basic goods and services remain high relative to incomes, and many households are still struggling to meet their everyday needs. For the average consumer, the issue is no longer how fast prices are rising, but whether their income can keep pace with the cost of living,” Consumer Council of Zimbabwe chief executive officer Rose Mpofu said.
Economist Rodney Zhuwarara said many Zimbabweans are struggling to reconcile falling inflation with rising living costs.
“Zimbabweans are increasingly questioning the impact of lower inflation as the prices of goods and services continue to edge upward, keeping pressure on household budgets,” he said.
Economic analyst Arnold Shava said the figures nevertheless demonstrate that monetary reforms are beginning to gain traction.
“This (slowing inflation) is evidence that monetary reforms are having a positive impact,” Shava said.
“If maintained, this could gradually restore confidence in the ZiG.”
Some manufacturers have been forced to cut production shifts as orders decline and working capital becomes scarce.
In several industrial areas, factories that previously operated continuously are now running for fewer hours or fewer days each week.
According to the Confederation of Zimbabwe Industries (CZI), nearly half of the country’s industrial capacity remains idle, implying that many firms are operating at between 40% and 60% of capacity because demand and liquidity are insufficient to support higher output.
CZI said some businesses are struggling to survive while others have already closed, with many factories operating significantly below capacity due to weak demand and limited access to liquidity.
“The reality is that many factories are operating well below capacity because demand and liquidity are simply not there,” CZI said.
The liquidity squeeze is increasingly evident in the banking sector.
Despite widespread complaints from industry over limited access to funding, banks have been slow to utilise the Reserve Bank of Zimbabwe’s ZiG1.2 billion Targeted Finance Facility. The facility, launched in January 2025, is a special lending window designed to channel affordable credit to productive sectors through commercial banks. It was introduced to support businesses grappling with acute liquidity constraints and high borrowing costs, yet uptake by financial institutions has remained subdued despite strong demand for financing across the economy.
The central bank said the limited utilisation suggests continued caution among financial institutions in extending ZiG-denominated loans at a time when businesses require financing to sustain operations and support growth. “This suggests that financial institutions remain hesitant to extend ZiG-denominated credit to productive sectors at a time when industry requires funding to support growth and operations,” Dr Mushayavanhu said.

Source: Reserve Bank of Zimbabwe

The reluctance to lend has deepened concerns that economic activity is being constrained by a shortage of liquidity rather than a shortage of opportunities.
The effects are increasingly visible in the formal retail sector, where some supermarkets are battling intermittent stock shortages and thinner inventories as working capital constraints, supplier payment challenges and competition from informal traders intensify.
In the retail sector, supermarkets are facing similar pressures. With consumers spending less and access to financing constrained, some formal retailers have reduced imports and scaled back inventory purchases to preserve cash.
They are increasingly maintaining leaner stock levels, while suppliers are demanding quicker payments and, in some cases, hard currency.
These developments reflect an economy in which businesses are prioritising survival rather than expansion.
The Retailers Association of Zimbabwe said the challenges emerging in supermarkets are symptomatic of wider economic pressures, with liquidity shortages disrupting the entire supply chain.
The association noted that retailers are finding it difficult to replenish stock, while suppliers are increasingly demanding hard-currency payments, adding further strain to formal businesses.
It warned that the sector is also losing ground to the growing informal market and cautioned that more retailers could come under pressure if liquidity conditions do not improve.
“Unless liquidity conditions improve and the operating environment becomes more supportive, more retailers will come under pressure and the viability of formal trade will remain at risk,” the association said.
The growing strain has fuelled concerns that Zimbabwe’s victory over inflation may have been achieved through economic restraint rather than robust growth.
The RBZ and Treasury have implemented one of the country’s most aggressive monetary tightening programmes in recent years, maintaining a 35% policy rate, restricting money supply growth and enforcing fiscal discipline.
The strategy has helped stabilise the exchange rate and bring inflation under control.
But it has also reduced the flow of liquidity through the economy.
Some economists argue that while policy discipline deserves credit for lowering inflation, weak demand has also played a significant role.
Consumers have less money.
Businesses have less money.
Banks are lending less.
Factories are producing less.
In such an environment, inflation naturally slows, but so does economic activity.
The RBZ says foreign currency reserves have risen to US$1.2bn, providing cover of roughly six times the stock of ZiG deposits and strengthening the central bank’s ability to defend the local currency.
Authorities say reserve accumulation forms a key pillar of the roadmap towards an eventual mono-currency regime.
The RBZ has identified low and stable inflation, adequate reserves, exchange-rate stability, stronger demand for the ZiG and continued fiscal discipline as prerequisites before such a transition can occur.
Finance, Economic Development and Investment Promotion Minister Professor Mthuli Ncube remains confident that inflation will stay under control despite growing geopolitical risks linked to tensions involving the United States, Israel and Iran.
“The general disruption of logistics is set to have a negative impact on the global economy. The longer the conflict persists, the more severe the situation becomes,” Professor Ncube said.
“But from our simulations, we do not expect inflation to run away. We are confident inflation will remain within single digits for the year.”
RBZ Governor Dr Mushayavanhu shares that optimism.
Yet significant structural vulnerabilities remain.
Zimbabwe’s exchange-rate stability continues to depend heavily on export earnings, diaspora remittances, tobacco receipts and mineral revenues, particularly gold. At the same time, many businesses and households still prefer to save, price and transact in US dollars, reflecting lingering mistrust created by previous currency collapses.
In effect, the US dollar remains Zimbabwe’s unofficial inflation anchor.
The challenge confronting policymakers is therefore no longer simply about bringing inflation down.
While inflation data suggests macroeconomic stability is taking hold, the absence of strong demand, weak liquidity and constrained production mean that for most households and businesses, Zimbabwe’s recovery remains visible in statistics rather than felt in incomes or livelihoods.