Wednesday, 19 April 2023

FOOD PRICES RISE AGAIN IN ZIM

PRICES of goods sold in local currency have started rising again, despite decelerating inflation, a development retailers have attributed to black market exchange rates with the premium and expected premium over the official rates now rising.

According to ZimStat, the national statistics agency, month-on-month inflation rate in March was 0,1 percent gaining only 1,7 percent on the February rate of minus 1,6 percent. This did blend inflation in US dollars and inflation in local currency, with the local currency accounting for 30 percent of the blend. But the inflation was so low that the local component could not have been more than a couple of percent, and even that would imply falling prices in US dollars.

The black market had been largely tamed before the latest surge, with premiums at around 20 percent, so there were far more direct US dollar transactions, and the surplus of inflows of foreign currency greater than the outflows.

But now prices are rising fast in local currency. A 2kg pack of Gloria baking flour, which cost $1 999 each in March now sells for $2 736, Cookmore cooking oil, which was $3 599 per 2-litre bottle is now selling at an average of $6 500 each.

A 500g box of Cerevita cereal, priced at average $3 300 just a month ago, is now going for $5 130 each.

Various brands of sugar cost about $2 000 for a 2-kilogramme pack on average less than two months ago, but are now retailing for nearly $4 000 for the same volume, as producers and traders continue to index prices to the US dollar black market exchange rate.

Treasury is on record as saying while some businesses procure their forex from the open market, the volume of transactions executed on the black market was too insignificant to drive economy wide price increases with retailers now expected to generate their own foreign currency at their own tills. Wholesalers and retailers are allowed to operate an exchange rate of the interbank rate plus 10 percent.

Confederation of Zimbabwe Retailers (CZR) president Denford Mutashu said the price increases were a result of the depreciation of the local currency on the black market with suppliers pegging their prices to the black market.

“When this happens, there is also a lot of forward pricing that is done. Suppliers refuse to supply their products in local currency and also demand US dollars, which becomes a challenge for businesses, especially formal retailers for whom the US dollars local sales are not enough.

“Part of the problem is due to power shortages as they are increasing costs of production. That, coupled with labour costs, as employees also demand US dollar salaries, means producers will bundle up costs and all goes down to the consumer,” he said.

Retailers suggested that the growth of the “shadow economy” needs to be controlled because it is putting pressure on businesses and the cost of doing business.

They said there was a need to come up with a deliberate policy to promote use of local currency, because if it collapses, the situation could get worse as the country will have to deal with the other challenge of imported inflation again.

“Right now transactions are 75 percent dollarised. While some may celebrate this, it does more harm to our economy as it makes it difficult for manufacturers to produce at competitive prices. A fully dollarised economy is not a conducive environment for growth.

“We need to protect the local currency as we should not let it die. Other economies are actually running away from the US dollar right now because it weighs heavily on them,” Mr Mutashu added.

The Zimbabwe dollar official rate has also depreciated by 42,87 percent year to date, sliding from $671,45/US$1 on January 1 to $959,31/US$1 presently. In the past 12 months, it has moved from $150,22:US$1.

On the black market, the local currency fell from $1 200/US$1 to $1 600/US$1.

Economic analyst Tafara Mtutu said Zimbabwe was experiencing a rise in prices because of somewhat steep exchange rate movements in the last three or so months.

“Prices have moved upwards as a reflection of exchange rate movements in recent (months), and this also comes down to the fact that companies and retailers are using the US dollar as a base currency,” Mr Mtutu said.

Economic commentator Farai Mutambanengwe said the problem was the issue of blended inflation, which does not reflect what consumers are seeing as they are witnessing an increase in prices.

“Service providers are increasing prices by more than 50 percent in some sectors, as we have experienced about 60 percent depreciation of the local currency in the last two months, which means retailers should also adjust their prices,” Mr Mutambanengwe said.

Economist Dr Prosper Chitambara said the economy had seen a decrease in the blended inflation rate, because of the US dollar consumer index as it is moderating the increase in the Zimbabwe dollar inflation.

“In Zimbabwe dollar terms, we have seen prices increase due to the depreciation of the local currency and have already seen the widening of the premium with the black market rates.

“So the prices are not responding to inflation figures being published but to the exchange rate on the parallel market,” he said.

“The increase in local currency prices is being smoothed out by the US dollar price inflation thereby giving us a false picture of price increases in the economy, but the effect is really being felt in our pockets as we try to make payments in local currency,” said another economist Tinevimbo Shava.

Other analysts also concurred that the use of blended inflation was causing distortions due to its diluting effect on local currency inflation. They added that authorities should report inflation figures separately as no one buys in mixed currency but exclusively in one currency. Herald

0 comments:

Post a Comment