eBusiness Weekly
This week has been quite eventful as various entities released interesting bits information to the public. Three reports, which not only make for some interesting reading but are indeed open to various interpretations and analysis were released.
Firstly, state agency Zimstat, released the December 2017 Consumer Price Index statistics while Zimra released the Revenue Collections Report for the year.
The Zimra report reveals some interesting dynamics in the economy, such as the fact that PAYE revenues underperformed, a sign of rising informalisation of the economy and declining levels of formal employment, while VAT revenue collections surged, in my view driven largely by rising inflation in the economy.
Zimra also laments rising non compliance, as indicated by growing tax arrears. I also noted that any suggestions that Government will review the fuel prices downwards are quite fanciful, given the important contribution of excise duties on fuel imports to government revenues.
Beverages maker Delta Corporation also gave a market update where the company reported a 24 percent surge in its last quarter revenues for 2017, which pushed its overall performance 9 percent ahead of the previous year’s top line numbers. I will unpack my thoughts on the factors that drive Delta’s Q$ performance in a bit of detail in my article for next week.
In the meantime, I will focus my discussion on only one of the three very important economic data sets released this week; the annual CPI, which I found most captivating.
Zimstats reports that headline annual inflation for the year closed at 3,46 percent for December, meaning that prices on average rose by just under three and a half percent for the whole year.
Whilst the CPI methodology used by Zimstat is unquestionably statistically accurate and in line with various conventions and guidelines that govern the collection and presentation of such data, many consumers, business owners and analysts decry the efficacy of the CPI as a tool for planning their personal, household or business finances.
The CPI may work as a broad policy tool, but given the realities and challenges of actual day to day cost and expenditure patterns faced by businesses (producers) and consumers who are wage earners in the economy, the pervasive question has always been: How useful is the CPI to the average business, or person.
My short answer is that “the CPI not very useful”. For the ordinary consumers, the CPI is seriously divorced from the average person’s cost pattern, which is driven mainly by the food basket and other basic necessities such as housing and rent, school fees, fuel and transport costs, clothing prices and so forth.
These are the things that really matter to the “average consumer” (wage earner) that Zimstat refers to in its commentary accompanying the December CPI data. It is the inflation in these items that drives household expenditure patterns, which are the subjective measure of inflation as “experienced” by the consumer.
However, the 3,46 percent Annual CPI is clearly watered down by the inclusion of other categories into the consumption basket that are totally irrelevant to the average consumer, or average Zimbabwean, who is facing huge jumps in prices of the things that really matter to him.
Whilst we cannot challenge the authenticity of the CPI data released by Zimstat, it remains sufficient to say that the reality of the average business and average consumer is that prices goods and services, have risen by significantly more than the 3,46 percent suggested by Zimstat.
Estimates of prices rises range from 50 percent to 200 percent for some items, although not basics. Relying therefore on the CPI as a planning tool becomes hazardous for business as cost patterns in the real economy are significantly different.
This creates problems for business and labour. Workers are really feeling the pinch from real declines in disposable incomes. Companies are also facing real challenges in budgeting and planning for their costs and the CPI cannot be relied upon. Something must be really done.
At the very least, we may need a realignment of the various category weightings in the CPI with the demographic and spending patterns of citizens and businesses not only to make the CPI more indicative of the realities on the ground, but to make it more relevant as a planning tool.
Already as I write, workers are clamouring for wage reviews of up to 200 percent, which is a fully justifiable demand given the unrecorded inflation that is pervading our economy. At the same time, companies and employers are facing unpredictable business costs given the hysteresis and upheaval in the informal currency markets which are driving up, not just business costs, but prices of goods and services. These are challenges that the relevant agencies within Government should closely look at and engage on, if things are to make sense.
Without an accurate measure of the price dynamic in the economy, we face the real risk that wages may rise faster than productivity, if the current demands from the labour unions are implemented, further derailing any prospects of achieving economic competitiveness.
At the same time, if business cannot ameliorate the plight of the workers, who face genuine pressures from the continuously rising prices of basic goods, we will have disharmonious employer employee relations right across the country. Bear in mind social relations are already strained and any further stress will result in worsening social tensions.
As labour negotiates for higher wages, due caution and restraint should be exercised by all parties so that the economy does not slip into a wage inflation spiral.
The writer is an economist. The views expressed in this article are his personal opinions and should in no way be interpreted to represent the views of any organizations that the writer is associated.
