PHILLIMON MHLANGA/ TAURAI MANGUDHLA
Despite putting in place a disinflationary p r o g r a m m e in place, Zimbabwe appears to be fighting a losing battle after annual inflation raced to 673.39% in March from 540.6% in the previous month amid fears it will continue on the upward trend as the economy grapples with the effects of the coronavirus.
This is the highest inflation rate since dollarisation in 2009. The central bank is targeting 50% by year-end.
The month on month inflation also surged to 26.59% in March from 13.52% in February, reflecting a 13.07 percentage points gain.
Economist Prosper Chitambara said inflationary pressures are going to increase into the future, largely owing to limited production which will affect supply and runaway expenditure.
“Limited production that will push prices up then there is runaway expenditure largely due to unforeseen expenditures by government,” Chitambara told Business Times, adding the widening of the black market premium on foreign currency is also expected to drive inflation.
He projected that Zimbabwe may breach hyperinflation territory where month on month inflation is at least 50%.
Economist John Robertson said scarcities are going to be the driving force behind inflation and local production is the major solution.
“We need to become selfsufficient. If we become self-sufficient we won’t have scarcities. The scarcity problem could become much worse if delivery of food from other countries becomes difficult because of the virus,” Robertson said.
“It takes longer for shipment of food to come from other countries anyway and the only solution to food is that we need to produce it ourselves, but we have to wait for seasons and the only time we can produce better food from now is 2021.
“The scarcity of foreign currency has been driving inflation. A smaller foreign currency scarcity will allow exchange rate stability to develop.”
He said going into the future, it looks like the situation will get worse for Zimbabwe before it gets better because of deindustrialisation, massive unemployment and social problems Zimbabwe’s runaway inflation is mostly driven by the shortage of foreign currency, which has led to huge disparities in the exchange rate between the Zimbabwe dollar and the United States dollar.
Prices of basic commodities continue to rocket due to the collapse of the local currency on the parallel market.
This is likely to cripple local firms because input costs continue to skyrocket.
The issue of price hikes on a daily basis is making planning difficult for local companies.
Zimbabwe is experiencing a second hyperinflation episode in 10 years.
And economist, Steve Hanke of John Hopkins University in the US who tracks Zimbabwe inflation, using his own model, estimated that it was more than 1000%.
The rampant inflation, which has helped sink the country into deep poverty and squeezing a growing number of people, is believed to be a result of government-imposed austerity measures and poor and inconsistent policies.
Zimbabwe relies heavily on imports paid for in foreign currency. The destructive inflation result is the decline in relative competitiveness in exports and reduces demand for the local currency.
This causes currency depreciation. This comes at a time when the value of the Zimbabwe dollar has plummeted significantly, effectively making the United States dollars increasingly becoming the currency of choice inside Zimbabwe because it stores value.
Salaries and wages now scarcely cover basics in Zimbabwe which is in the midst of economic collapse. The average monthly price of a basket of goods needed to support a family of five is about ZWL$5 000, according to the Consumer Council of Zimbabwe.
Economic policies have shown little signs of working and the economy has been atrophying for years now.
The economic crisis has decimated the value of salaries and savings, causing poverty to soar. “Twelve months ago, I used to live like a king,” Sifiso Ndoro, a 37-year-old diesel plant fitter with a Harare based company told Business Times this week. “I used to have a steady flow of money, with my salary getting me through the month. Now I will be lucky if the amount gets me through a week. Luxuries like trips to restaurants are gone. I have given up meat; now I mostly eat vegetables and potatoes.” Robertson warned this week inflation will remain elevated.
“We are not behaving in a way that will bring down inflation. It looks like nothing is not going to stop it [from skyrocketing]. The problem is it’s driven by black market exchange rate and prices continue to go up.
The disinflation programme implemented by the Reserve Bank of Zimbabwe is not working because the central bank has no control of the exchange rate. So, we are likely to add 30% or more.
It’s likely to reach 1000% soon,” Robertson told Business Times yesterday.
