Mthuli wary of imported inflation risk

PHILLIMON MHLANGA

Finance and Economic Development Minister, Mthuli Ncube, is  worried by the threat of imported inflation from elevated  Russia -Ukraine conflict which has triggered global energy price increases.

Signs of imported inflation, which refers to inflation due to increases in the prices of imports, which increases domestic costs of production and leads to rising prices of domestically produced goods, arose last week with a hike in local fuel prices.

The rising fuel prices will also result in a corresponding sharp uptick in the prices of other goods as the cost of production and transportation of goods surge.

Ncube said the impact should not be underestimated as the government has no  mitigation measures to deal with imported inflation.

Inflation  erodes the value of the Zimbabwe dollar. It also hinders pricing mechanisms, making it difficult for businesses to plan.

It comes  as most macro indicators  point to the economy facing massive headwinds.

“Don’t underestimate the impact of global inflation. This is what we call global spillovers.  The ongoing conflict between Russia and Ukraine is expected to influence international prices of oil, gas, fertilisers and cooking crude oil products, of which Russia and Ukraine are major producers. Thus, the economy will be affected by imported inflation,” Ncube said.

“It clogs up the supply chain and pushes up prices of goods and services.  It increases the cost of production, cost of logistics. We don’t have much protection on imported inflation.”

He said the economy will be faced with higher prices and that’s going to push inflation higher.

“So, it’s not easy to come up with mitigation measures to deal with this (imported inflation),” Ncube said.

He said the government will not “exceed reserve money targets and will keep a tight leash on  money supply”.

Ncube’s remarks came after the insurance sector warned that Zimbabwe was exposed  to geo-political developments.

“We are heavily exposed as a country by the ongoing Russia-Ukraine conflict,”  David Nyabadza, the chairman of the Zimbabwe Insurance and Pensions  Apex Council, said.

Government projected the economy to grow by 5.5%  this year. But, the adverse impact of imported inflation, foreign currency shortages, power cuts, currency volatility, among many other challenges, will make it difficult for the country to attain the gross domestic product growth target.

Exacerbating the situation is that the government has no  fiscal space  to cushion industry.

Zimbabwe’s annual inflation  has been on an upward trend.  Inflation for the month of February stood at 66.1%.  But,  analysts said it can hit over 100% by June.

The global central banks are hiking interest rates to tame the inflationary pressures.

Zimbabwe might take a cue from global central bankers.