‘Inflation target achievable’


HARARE – Economists say Zimbabwe’s five percent or less year-on-year inflation target is achievable based on maintaining the existing multiple currency regime.

The predictions come in the wake of a decline in the July annual inflation rate by 0,03 percent to 3,94 percent, attributed to restricted price movements.

The rate of inflation denotes the magnitude by which prices of goods and services increase over a given period, usually annually or monthly.

A decrease in the rate of inflation does not necessarily mean or translate to a fall in prices by a similar measure or magnitude.

Economist Christopher Mugaga said the inflation target of five percent was absolutely achievable.

“However, this is not transforming into improved standards of living for Zimbabweans since it is a phenomenon which can be equated to gross domestic product (GDP) growth without job creation.

Government has limited powers to control inflation as the interest rate tool does not seem to work in a dollarised environment.

“What the government can only do as an immediate measure to keep inflation under check is to continue using a multi-currency regime,” he said.

The year-on-year food and non-alcoholic beverages inflation, which is prone to transitory shocks, stood at 4,29 percent while non-food inflation stood at 3,79 percent in July.

Month-on-month inflation rate in July 2012 was 0,23 percent, gaining 0,03 percentage points on the June 2012 rate of 0,20 percent.

Zimbabwe National Chamber of Commerce chief economist Kipson Gundani also said the inflation target was attainable based on the weakening South African rand against the United States dollar.

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“As the rand is weakening it is becoming fairly cheaper for the local industry to import from South Africa and this wanes inflationary pressures. At this rate we are likely to be within the five percent inflation range by year end,” he said.

Gundani said stability in utilities prices over the past few months had also helped to lower inflation to manageable levels.

Other economists however warned that although at 3,94 percent, the annual rate of inflation remains well within the confines of the five percent band below which Finance minister Tendai Biti forecasted inflation to close the year, caution should be exercised when interpreting Zimbabwean inflation statistics.

“A decline in the annual rate of inflation does not mean that general prices of goods are falling. Instead, it means that while the general price of goods is still increasing, the rate of price increase has slowed down.”

“Nonetheless, three years ago when the country abandoned the Zimbabwean dollar after a prolonged period of hyperinflation, the CPI was pegged at 100. This rebased CPI of 100 was reflecting the prices of goods that were prevailing at the time of dollarisation,” said an economist with a local bank.”

He added that, “The July 2012 CPI is now 101,6 implying that compared to prices at the inception of multi-currency, the general prices have increased by 1,6 percent. However, the prices of goods at the inception of multi-currency were relatively high as these prices were partly a reflection of insufficient goods in the market as well as lack of understanding of the true value of the United States dollar at this time.”

“The decline in inflation in 2009 was partly a correction of this anomaly and a sign of improved availability of basic goods. Therefore, although the current inflation of 3,94 percent seems to be relatively low, the price level of general goods could be much higher,” he said.

Tight liquidity, cash budgeting and low salaries give inflation very little latitude to move, but high cost of production due to obsolete equipment (high utility charges, high cost of power and expensive finance) and a huge import bill continue to exert pressure on prices, hence determine inflation levels.

Zimbabwe adopted the United States dollar along with a host of other currencies such as the Rand, Pound and Euro among others in 2009 to help end a decade-long hyperinflation and improving growth.

‘Inflation target achievable’

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