Manufacturers slash prices by 23%

LIVINGSTONE MARUFU

The Confederation of Zimbabwe Industries (CZI), the biggest business lobby group in Zimbabwe, revealed this week that food manufacturers have reduced prices by more than 23% in response to government policies.

According to CZI, price reductions were visible in all industries. Retailers have reduced the prices as a result.

According to a snap  survey  conducted by Business Times this week in the capital, Harare, the cost of a 2-litre bottle of cooking oil has dropped from ZWL$26 550 to ZWL$17 999, the cost of a packet of rice has decreased from ZWL$16 000 to ZWL$11 000, and the cost of a bar of soap has decreased from ZWL$11 000 to ZWL$8000.

“Food manufactures slashed prices by more than 23% in July 2023 compared to June 2023. The decline in prices shows that industry responds to policies rather than demonstrating any insatiable appetite to profiteer as often alleged by policy makers. The trend of reducing prices was evident across all sub sectors, albeit in different magnitudes,” CZI said.

The Producer Price Index (PPI), which gauges how quickly prices of goods sold after leaving the producer change, has also decreased.

The consumer price index (CPI), which tracks changes in consumer-paid prices for goods and services, is distinct from the producer price index (PPI).

Given that producers pass on to retailers and consumers any input inflation that raises their production costs, the PPI is anticipated to function in this regard as a leading indicator for the CPI. “The producer price index decreased from 104% in June 2023 to -21.8% in July 2022 shedding 125.8 percentage points.  Producers severely reduced prices in July 2023 in line with the policy measures that were prescribed by the policy makers.

“The appreciation of the local currency on the official market and the parallel market meant that producers could revise prices downwards. This cements the notion that changes in prices in Zimbabwe are largely influenced by the policy environment,” CZI said.

It continued: “The tremendous decline in producer prices spiralled down to consumers as they enjoyed price reduction in retail and wholesale shops as evidenced by the decline in CPI.”

Despite August being an election month in 2023, the combined month-over-month inflation rate remained negative. It was -6.2%, up about 9.1 percentage points from the rate of -15.3% in July 2023. In June 2023, the government implemented measures to control inflation, and those actions were successful in turning around the combined inflation, which was approaching hyperinflation at the time.

The fact that August’s combined inflation rate was negative reflects declines in both local and US dollar prices.

The Total Consumption Line (TCL), which is a measure of a basket of goods which consumers need to have to be deemed not poor and is measured in local currency declined by 8.5 percentage points in August 2023, reiterating the fact that prices of goods and services were declining in August 2023 compared to July 2023 even in local currency.

The annual blended inflation rate decreased from 101.3% in July 2023 to 77.2% in August 2023, shedding 24.1 percentage points. The continued decline in annual blended inflation is largely a reflection of the fact that tight money supply and prudent fiscal spending are critical in taming inflation.

While sentiments as well as confidence in the policy makers is often blamed for a large explanatory role in inflation trends, the recent experience shows that fundamentals also matter in managing inflation.

The Reserve Bank of Zimbabwe (RBZ) reversed its projection on annual inflation in its mid-term monetary policy statement from 10%-30% end of year to 60%-70% end of year 2023 and the current inflation projections are more realistic, and they can be achieved if the authorities stay the course.

RBZ governor John Mangudya told Business Times that August inflation is expected  to remain negative due to the prevailing stability.

“The government largely focused on restraining the growth of excess liquidity, which was  used by economic agents to chase after United States dollars on the parallel market and this has  gone a long way in stabilising prices and exchange rate across all sectors.

“The manufacturers had no choice but to reduce prices in line with the declining exchange rates,”Mangudya said.

He added:  “The central bank will  use open-market operations to ensure that we do not put extra money (liquidity) into the economy; that we remove it and we use non-negotiable certificates of deposits to mop up excess liquidity.”