Business unfazed by sub-zero inflation, want stablity

05 Jul, 2024 - 00:07 0 Views
Business unfazed by sub-zero inflation, want stablity RBZ building

eBusiness Weekly

Tapiwanashe Mangwiro

The business community and the Reserve Bank of Zimbabwe (RBZ) say they are not worried about the current inflation trend as they see it rising in future but are focusing on extending this stability.

It comes after the country recorded a zero percent inflation rate in local currency and a negative inflation in USD terms.

The month-on-month inflation rate for the ZiG Consumer Price Index (CPI) was notably stable at 0,0 percent. This indicates that, on average, prices remained unchanged between May 2024 and June 2024.

In contrast, the USD inflation rate for June 2024 exhibited a deflationary trend. The month-on-month inflation rate was -0,3 percent, a decrease from the 0,1 percent recorded in May 2024.

This reduction highlights a general decline in price levels when measured in USD, which could be attributed to various factors, including exchange rate dynamics and import price adjustments. Increased competition can also be a key factor forcing businesses to reduce prices.

The Weighted inflation rate, which aggregates multiple indices for a comprehensive view, also showed deflation. The month-on-month rate for June 2024 was -0,2 percent, an improvement from the -0,6 percent recorded in May 2024.

This weighted measure’s slight gain indicates a reduction in deflationary pressures compared to the previous month.

These statistics paint a picture of economic stability in local currency terms, alongside deflationary trends when measured in USD and a slight easing of deflationary pressures in the weighted measure.

Worries from economists are that deflation, if entrenched, can ripple through the economy, cause high unemployment, and catapult a recession into a depression.

“When companies are unable to sell products and revenue decreases, they cut costs. This may include closing stores, plants, and warehouses, and laying off workers. Workers will decrease spending, leading to less demand and more deflation,” said economist Gladys Mutsopotsi-Shumbambiri.

The Zimbabwe National Chamber of Commerce (ZNCC) immediate past president Mike Kamungeremu however said the business community is not necessarily looking at inflation figures at the moment but want the current stability to prevail.

“What we are appreciating more now is the stability that we are experiencing right now given where we are coming from the past years.

“We appreciate that and we are not fazed by the negative inflation or the near zero inflation,” Kamungeremu said.

“The generality of the membership is still cautious because they feel it is still early days since it is just 90 days after the Monetary Policy Statement (MPS). We are not celebrating too much, and what we wish for is stability as we close the year.”

The RBZ Governor, Dr John Mushayavanhu told this publication that we are definitely going to witness inflation, but will be a single digit inflation which is also predicted by the International Monetary Fund (IMF).

“The inflation figures for May and June are testimony to the fact that the introduction of ZiG has resulted in price and exchange rate stability. We are not going into deflation and our MPS projects that ZiG inflation will end the year at between 2 percent and 5 percent with the IMF projecting 7 percent as per their recent statement,” Dr Mushayavanhu said.

According to ZNCC, they have put through their inflation expectations to the central bank as well, in order to aid in policy direction.

“From a business perspective, an inflation rate of 5 percent month on month is something that we can work with. At our congress last week, we were in discussion with them and they said they are targeting around 3 to 5 percent so we are in agreement and we all want the same,” Kamungeremu added.

The Zimbabwe National Statistic Agency (ZimStat), said in June price levels across the ZiG, USD, and Weighted inflation rates, reflected the multifaceted nature of the country’s economic conditions.

ZimStat commented, “The diverse inflation measures underscore the complexity of Zimbabwe’s economic landscape, necessitating nuanced policy responses to sustain growth and stability.”

The Monetary Policy Committee in its latest report said the stabilisation measures implemented by the bank since the beginning of April 2024 have already shown significant results.

According to the committee, they expected June inflation rate to be around 0 percent, driven by declines in both food and non-food inflation.

“The measures we have taken are yielding the desired results, with inflation coming under control faster than anticipated,” stated the MPC.

Looking ahead, inflation pressures are expected to remain subdued during the outlook period, with projected inflation to end the year below 5 percent.

This optimistic forecast is underpinned by the stability of the exchange rate, which has been a critical factor in managing inflation.

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