Inflationary pressures intensify

LIVINGSTONE MARUFU

Zimbabwe’s inflationary strain deepened in July, with annual inflation accelerating to 95.8%, up from 92.5% in June, underlining the enduring fragility of the country’s monetary framework despite policy tightening and a broadly stable exchange rate.

The data, released by the Zimbabwe National Statistics Agency (ZimStat), highlights the persistent upward drift in consumer prices, driven by surging costs of food, fuel, electricity and other essential goods.

The figures suggest that inflationary expectations remain deeply embedded in the economy, despite the Reserve Bank of Zimbabwe’s (RBZ) ongoing efforts to maintain monetary discipline.

The local currency, the Zimbabwe Gold (ZiG), introduced following last year’s sweeping currency reforms, continues to grapple with the lingering aftershocks of its September 2024 devaluation.

Even in United States dollar terms—traditionally more stable—consumer prices edged higher. Month-on-month USD inflation moved into positive territory at 0.3% in July, reversing June’s -0.2% deflation, signaling that price pressures are not confined to the domestic unit.

While monetary authorities attribute the recent spike to base effects resulting from last year’s policy transition, analysts caution that more fundamental vulnerabilities are at play.

“Inflationary pressures are always a function of the cost structure and future expectations,” said economist Vince Musewe.

“This trend will persist until business confidence improves and there is greater clarity around both economic and political stability.”

Dr Prosper Chitambara, another economist, projected that headline inflation will continue to rise over the next two months, peaking around September.

“The annual inflation figure is a barometer of macroeconomic credibility. What we’re seeing is a delayed correction that reflects underlying fragilities in the economy,” he said.

The RBZ has adopted a tight monetary stance since the introduction of the ZiG, with limits on money supply growth and a clampdown on quasi-fiscal spending.

However, structural cost pressures—such as rising fuel and energy prices, import-dependent production chains, and regulatory burdens—continue to filter through to the consumer price index.

Despite these pressures, some economists maintain a cautiously optimistic outlook. Former monetary policy advisor Eddie Cross said the fundamentals underpinning the ZiG remain relatively sound.

“This is the most stable period for a local currency since Zimbabwe reintroduced its own unit,” Cross told Business Times. “What’s puzzling is that inflation continues to rise at a time when the ZiG is performing well. In real terms, the currency has appreciated, and we are not seeing exchange rate volatility.”

Cross anticipates inflation to continue trending upward through the third quarter, before easing in the final quarter of the year—an outlook consistent with the RBZ’s projection that inflation will stabilise by October as base effects wear off.

Central bank officials have repeatedly emphasised that the current uptick in inflation does not signal a breakdown in monetary control, but rather reflects statistical distortions inherited from the abrupt currency switch in 2024. They argue that the underlying trend remains downward and that recent measures will deliver greater price stability over time.

Nevertheless, the reality on the ground is more sobering. Businesses are revising cost structures almost weekly, while households are experiencing renewed pressure on purchasing power.

The surge in food prices has been particularly acute, reversing earlier gains in real incomes and stretching consumer resilience.

Economists agree that the core of Zimbabwe’s inflation dilemma lies not merely in policy instruments but in the broader issue of trust—both in the currency and the government’s commitment to reform.

“Until there is confidence in the durability of the ZiG and the predictability of the policy environment,” said Musewe, “inflation expectations will remain elevated, and price stability will remain elusive.”

As the country approaches the fourth quarter, policymakers face a delicate balancing act, maintaining macroeconomic discipline while addressing the structural headwinds that continue to undermine price stability.

Without a credible anchor—both fiscal and psychological—the ZiG’s future, and that of the broader economy, remains precariously poised.