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
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