Inflation will not run away

STAFF WRITERS

Finance, Economic Development and Investment Promotion Minister, Professor Mthuli Ncube, has moved to steady market sentiment, saying Zimbabwe’s inflation will remain anchored in single digits this year despite intensifying geopolitical turmoil in the Middle East, Business Times can report.

His reassurances come as a deepening confrontation involving the United States and Israel on one side and Iran on the other disrupts global trade routes, with naval tensions around the Strait of Hormuz, one of the world’s most critical oil transit corridors, triggering fresh supply shocks and renewed energy price volatility.

The spike in fuel costs is already feeding into global inflation, raising input costs for both advanced and emerging economies. While oil markets briefly stabilised on tentative ceasefire expectations, the collapse of negotiations and renewed maritime disruptions have heightened fears of prolonged supply constraints.

Prospects for further talks remain uncertain.

“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 that inflation will remain within the single-digit range for the year.”

Zimbabwe’s inflation trajectory has remained broadly contained in recent months, underscoring a period of relative macroeconomic stabilisation.

Annual inflation in the Zimbabwe Gold (ZiG) currency rose modestly to 4.4% in March, up from 3.8% in February and 4.1% in January. This marks a dramatic decline from the 95.8% peak recorded in June last year.

Treasury maintains that, despite emerging external risks, inflation will remain firmly within single digits over the medium-term outlook.

A slowdown in inflation, however, does not imply falling prices. Rather, it reflects a deceleration in the rate of price increases, a phenomenon known as disinflation.

This distinction is critical for both policymakers and businesses.

Apparently, while price growth is moderating, the overall cost base within the economy continues to rise, albeit at a slower pace.

Zimbabwe’s current trend therefore signals stabilisation rather than deflation, suggesting that policy interventions are beginning to anchor inflation expectations and restore a degree of pricing predictability.

The recent disinflationary trend has been underpinned by a combination of tight monetary policy and fiscal discipline, according to authorities.

The Reserve Bank of Zimbabwe (RBZ) expects a temporary uptick in inflation through June 2026, driven largely by higher import costs linked to rising global oil prices.

“Annual inflation is expected to increase in the near term to June 2026 before returning to its steady-state levels,” RBZ governor Dr John Mushayavanhu said.

Despite these short-term pressures, the central bank argues that the broader macroeconomic framework remains intact.

Annual ZiG inflation reached single digits in January for the first time in nearly three decades, a milestone authorities view as a turning point in Zimbabwe’s long struggle with price instability.

At the same time, US dollar-denominated inflation has also moderated sharply, reinforcing the narrative of improving price stability across the dual-currency system.

Currency stability has played a central role in containing inflation expectations.

The interbank exchange rate has remained broadly stable, averaging around ZiG25 to the US dollar in the first quarter, while the parallel market premium has been contained below 20%.

The RBZ attributes this stability to sustained foreign exchange interventions, amounting to approximately US$1.6bn since April 2025, alongside the functioning of the willing-buyer willing-seller foreign exchange framework.

Reserve money growth has also been tightly managed, with local currency liquidity standing at ZiG5.8bn at the end of March.

Broad money (M3) growth in local currency terms averaged 2.3% during the first quarter, reflecting what the central bank describes as a “prudent and disciplined” monetary policy stance.

Lending activity has remained subdued but stable, with weekly growth in ZiG-denominated loans averaging 0.1%, compared with 0.51%t for foreign currency loans.

Local currency loans accounted for just 16.5% of total credit as of March, highlighting the continued dominance of dollar-based financing within the economy.

The RBZ has indicated that it will maintain a cautious approach to liquidity management, aligning money supply growth with real economic activity to preserve currency stability.

“Liquidity conditions will remain consistent with the inflation objective of preserving ZiG stability and ensuring sustainable economic growth,” Dr Mushayavanhu said.

While the current disinflation trend offers a measure of relief to businesses and households, analysts warn that Zimbabwe’s stability remains vulnerable to external shocks, particularly those emanating from global energy markets.

The Strait of Hormuz crisis underscores the country’s exposure to imported inflation, given its heavy reliance on fuel imports.

Even so, authorities argue that improved policy coordination between fiscal and monetary authorities, coupled with a commitment to market-based mechanisms, will help cushion the economy against external volatility.