LIVINGSTONE MARUFU/ LETTICIA MAGOMBO
Prices of basic goods are spiralling out of control as retailers respond to a huge spike in the exchange rate, especially on the parallel market.
These risks are pushing up annual inflation, which stood at about 60% in December 2021.
Most businesses price their goods using the parallel market rate, which this week has been hovering around ZWL$240: US$1. The Zimbabwe dollar also lost value at the auction system and is this week trading ZWL$112:US$1.
A survey by Business Times this week showed that prices of goods continue to rise in both US$ and ZWL$ terms since September last year.
This suggests that continuous increases in prices of basic commodities would further erode the consumers’ spending power.
The latest cost of living as measured by the Consumer Council of Zimbabwe for a family of six now requires more than ZWL$75 000 a month at a time when the majority of civil servants are earning around ZWL$22 000 per month.
The spike in fuel prices also triggered price increases of basic commodities with diesel now selling at US$1.38 per litre from US$1.35 while petrol went up to US$1.42 per litre from US$1.38.
Consequently, the exchange rate volatility has triggered a wave of price increases for basic commodities.
For instance, commercial beef is now selling at US$5.55 per kg from US$5.25 per kg. Special beef has gone up to around US$6.50 from around US$6.
In Zimbabwe dollars it’s selling at about ZWL$1320 per kg.
Another notable increase was recorded in cooking oil.
A 2litre bottle of cooking oil, which was selling at around ZWL$519 has gone up sharply to ZWL$750, while a 2kg packet of rice now retails at ZWL$420 from ZWL$360.
The price of sugar has also gone up from about ZWL$399 per 2kg to about ZWL$475 per 2kg. A 2kg packet of flour now sells at ZWL$499 from ZWL$320.
A 10kg of mealie-meal is now selling at over ZWL$1000, from ZWL$870.
Green bar soap has now gone up to about ZWL$400 from ZWL$320 while bread has gone up to ZWL$200 from ZWL$169.
A 2 litre bottle of Mazoe now costs ZWL$579 from ZWL$499.
Confederation of Zimbabwe Industries president Kurai Matsheza told Business Times that the spike in prices was triggered by the runaway exchange rate and global inflation.
The global inflation is around 7% and has also affected the importers of food stuffs and raw materials such as Zimbabwe.
“I have always said that there is a need for a permanent solution on the exchange rate question which continues to torment the economy,” Matsheza said.
“The spike in the parallel market has caused the goods to rise in two ways in that imported goods require foreign currency and one has to fetch most of the money on the parallel market since the auction system takes weeks to clear backlogs.”
Added Matsheza: “Hence the rate goes up and that the cost of production has gone up locally as most firms use both exchange rates to have enough forex requirements and therefore the blended rate has also gone up resulting in price hikes in shops.”
The Confederation of Zimbabwe Retailers president Denford Mutashu told this publication that the reason for price hikes is the decline in value of the local currency and the people’s lack of confidence in it.
“The decline in value of the local currency against the US dollar leads to price increases predominantly in the local currency,” Mutashu said.
“We agreed with the RBZ governor [Mangudya] on a path to make the local currency attractive, that is making it the currency of choice for predominantly most of the local transactions. We also agreed to reduce the appetite for tracking the parallel market exchange rate when pricing, which is the reason why the prices have been going up despite the support given through the auction system to most local businesses.”
Some other reasons, he said, are the increase in cost of doing business, that is; local authority rates, rentals and store and equipment maintenance, with perhaps the major cost being fuel.
Mutashu said: “You also have issues to do with fuel predominately most of the businesses are selling in local currency and because of the exchange rate that they apply it might not be attractive for consumers to pay in US$ and largely all, if not most of the service stations in the country are selling fuel in US$ that is sort of squeezing out formal businesses that at the moment ordinarily have got a huge component of their sales in local currency (more than 95% are constituted by local currency).”
The Reserve Bank of Zimbabwe governor John Mangudya, who recently held crisis meetings with the captains of the industry, said there is need to work closely in curbing the parallel market exchange rate volatility.
Mangudya said the industry and the central bank should work closely to avoid the erosion of the gains made so far.
“As a way of continuing with efforts to stabilise the economy, there is a need for everyone, through a collective responsibility, to exhibit good leadership and exercise restraint on the volatility of the foreign exchange rate,” Mangudya said.
“The bank should continue fighting inflation through restrictive monetary policy and building foreign exchange reserves as a way of augmenting the defence of the value of the local currency.”
The RBZ committed to come up with strategies to enhance the attractiveness of the local currency and strengthen its demand in the context of the multicurrency system currently in place with the central bank being challenged to continue to refine the foreign exchange auction system and to timely fund auction allotments in line with the auction rules.
The relevant regulatory authorities were challenged to carry out enhanced due diligence on auction participants and to monitor the use of funds obtained through the auction and resort to suspension for periods not less than six months and blacklisting.
Business was challenged to ensure compliance with the provisions of Statutory Instrument 127 of 2021 now embedded in the Finance Act (Amendment Number 7 of 2021), with emphasis on avoiding abuse of auction rules and funds from auction allotments, exchange rate manipulation or currency attacks.
