eBusiness Weekly
Golden Sibanda
Motor vehicles have registered some of the highest price increases in the 12 months to November, tracking the depreciating value of the Zimbabwe dollar against major currencies, especially US dollar.
The local currency has lost considerable ground against major currencies since being floated in February at US$1 to $2,5 but now trades at $15,67 against the greenback on the forex interbank market.
Zimbabwe has done little to curtail dependency on imports with industrial production ebbing to an average 40 percent, which puts pressure on foreign exchange rates due to high demand for forex needed for imports.
Weak exports, limited foreign direct investment and negligible external lines of credit mean hard currency inflows remain at a bare minimum and insufficient to satisfy Zimbabwe’s appetite for forex.
Remarkable variations in cost increases over the 12 months to November can be seen across the range of goods and services. Prices of vehicles, which include motorcars and bicycles, increased by more than 1 000 percent.
As vehicle spares, other items in the 1 000 plus range include passenger transport fares, car insurance and pharmaceuticals. In terms of food items, only seasonal fruit prices increased by more than 1000 percent.
Official statistics show that very low annual price increases affected rentals, domestic services, municipal services, medical services, hospital and dental services, medical aid contributions and school fees.
Economist John Robertson said prices that have lagged behind might start catching up in January. Non-food items account for the biggest weight in the consumer price index basket at 68 percent.
“Government’s main hope for January is that the foreign exchange black market, which has been driving the retail prices of goods and services, will be brought under control,” Robertson said.
If that is achieved, the high monthly price increases seen recently will become much more modest and permit the annual rate to start falling by about the middle of 2020, Robertson said.
Analysts believe that even if the black market for foreign exchange is brought under control, evidence suggest that the better part of next year will be needed to take the annual rate of inflation down below 50 percent.
Zimbabwe’s annual inflation raced from 5,39 percent in September 2018, just before the central bank ordered banks to separate forex and RTGS accounts amid a dollar crunch, to 175,67 percent by June this year.
Publication of the annual inflation rate was suspended in July 2019 after the country de-dollarised and the suspension is meant to provide more accurate inflation tracking based on a common currency.
Finance and Economic Development Minister Professor Mthuli Ncube, said publication of annual inflation figures will resume in February next year after a full cycle of same currency based prices data collection.
Although publication of annual inflation was suspended in July this year, the country had already started using mainly local currency in February when for the first time since dollarisation in 2009 the exchange was ‘allowed to float’.
Analysts hope pressures from trades unions will not undermine the attempts being made to generate, by 2021, a local currency that is worthy of respect.
On an annual basis, education increased by 70 percent; pre and primary education 61 percent, secondary education 69 percent, private college education 405 percent, and university education 165 percent.
Prices of accommodation increased by 223 percent, hair dressing and personal grooming 343 percent, personal care 535 percent, electrical appliances for personal care 271 percent and other appliances 652 percent.
Jewellery, clocks and watches increased by 566 percent, medical aid 947 percent, car insurance 1 925 percent. Prices of furniture and equipment jumped 527 percent while routine maintenance equipment rose 719 percent. Restaurant and hotel prices jumped 546 percent and catering services rose by 865 percent.
Going forward, the Reserve Bank needs to maintain tight leash on broad money supply, which also drives demand for foreign currency thereby pushing exchange rates up, making it a tool for inflation transmission, says Zimbabwe National Chamber of Commerce chief executive Takunda Mugaga.
“I think you heard the minister in his 2020 National Budget saying we expect the Reserve Bank to complement efforts to fight inflation by controlling money supply growth. That was section 51 of the budget.”
