Analysts call for new inflation measuring standards

HARARE - Economists say there is need to revamp Zimbabwe’s National Statistical Office (Zimstat) inflation measuring instruments to reflect reality and to keep up with international best practices.

Zimbabwe’s annual inflation slowed down to 3,63 percent in August shedding 0,31 percentage points from 3,94 percent in July, suggesting that prices are rising at a slower annual rate in Zimbabwe than in neighbouring countries.

Zambia reported a 6,4 percent annual inflation rate last month while South Africa most recently recorded a five percent inflation rate in August.

Economist Christopher Mugaga said the current consumer price index (CPI) weightings were no longer consistent with current consumer spending patterns as information on the ground indicates that real inflation is somewhat higher than is presently being recorded.

CPI data released by Zimstat suggested that prices have increased at just over 1,0 percent in the three years since the country abandoned its local currency after a prolonged period of hyperinflation.

“Consumers are spending relatively more on things like communication, food, transport and accommodation, education and health leaving very little to go towards hotels, restaurants, clothing and footwear, which are presently being accorded relatively higher weightings than they should have in the CPI,” he said.

According to the International Monetary Fund, the only other country in the world to experience such a low rate of inflation over the same time period was Japan, a country which has long battled deflation or falling prices.

Mugaga believes that one of the reasons the numbers are so inaccurate is that Zimbabwe’s consumer price index, compiled based on the average prices of a fixed basket of consumer goods, gives a 30 percent weighting to food prices. Most African countries weight food at around 50 percent.

“Zimstat has to go electrical if its figures are to reflect reality.

They might argue that they are using international standards to measure inflation but what they are putting in is no longer consistent with consumer needs. There is need for the statistical agency to restructure its methods,” he said.

In South Africa, dozens of economic variables, from inflation measures to tourism statistics, are released, predictably, regularly and reliably, by Statistics South Africa (Stats SA). This information, in aggregate, provides a useful snapshot of the country’s economy to policy-makers, economists, investors and businesses.

Other economists, however, feel Zimstat’s inflation figures are credible. Lorraine Chikanya, chief economist with the Confederation of Zimbabwe Industries said it is unfair to critique the formulae used by Zimstat as it is deemed fit by international standards.

“Inflation basically measures the average price movements of goods and services, and so this is only an indication of the movement of goods and services prices,” she said.

“The problem we have is that when people see the price of a particular service or good go up in a particular month, they expect a direct translation to an increase in the inflation rate, this however, is not the case. Maybe there is need for Zimstat to take some time to educate the public on what inflation is and how it is calculated.”

Another economist Johannes Chiminya said there is nothing wrong with the rates adding that though the rate is going down but that does not necessarily mean prices should be going down.

“By definition, inflation rate is the rate at which prices are changing. The decline in the calculated rate means that the rate at which the prices are increasing has decelerated. As long as the inflation rate is positive, it implies that prices are increasing. A decline in the positive rate implies that the rate at which the prices are increasing has just slowed down,” he said.

Chiminya said there was need for economic literacy, otherwise the technical aspects were all correct.
Although the country’s low inflation has been maintained since 2009 experts warn that failure to introduce policies aimed at increasing cash inflows within the economy will hinder efforts to consolidate economic gains.

“From industry point of view there is need to improve production and productivity and less attention should be focused on wage demands,” said Chikanya.

“Government expenditure should also be minimised especially consumptive expenditure as it triggers national demand, more of government expenditure should be directed towards capital projects.

Expectations are also known to trigger inflation and expectations for higher income are likely to induce price rises hence there is need for the nation to have rational expectations through policy announcements on the government revenue and expenditure.”

Chikanya said in addition there is need for policy consistency and continuity on the side of government. - John Kachembere

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