Inflation target within reach: Analysts

HARARE - Zimbabwe is set to achieve its inflation target of below five percent despite the recent upswing in the year-to-year rate for October to 3,38 percent, but must implement measures to avoid “imported inflation” economic analysts say.

The country is a major importer as its manufacturing sector remains depressed.

Inflation, which has been contained below 3,3 percent, is gaining momentum reaching 3,38 percent in October 2012, from 3,24 percent recorded in September.

However, analysts have warned that although the five percent inflation target set by the Finance minister Tendai Biti is attainable, government must implement measures to capacitate industry as a way of containing “imported inflation”.

Brains Muchemwa, an economist, said the predictability of pricing instils confidence in investors for planning purposes and the low inflation regime prevailing in Zimbabwe encourages investment.

“Considering that South Africa is our biggest trading partner of manufactured consumer goods,  the recent pressure on the South African Rand implies that our short-term inflation outlook is very good and in the long run, the five percent policy target remains within reach,” said Muchemwa, who is also chief executive for Oxlink Capital.

Luxon Kalonga, an investment analyst with Infinity Asset Management noted that the evident weakening rand made it cheaper to import from South Africa using the US dollar, thereby offsetting the price increase from increased fuel costs, leading to an only modest increase in price levels.

“However, going forward, we expect inflation to increase due to the changes put in place in the recent budget,” he said, adding that the increase in excise duty on alcohol and cigarettes imports will increase the non-food inflation.

“Food and non-alcoholic inflation is also set to increase following the introduction of 25 percent surtax on imported basic goods such as soaps, meat products, beverages, dairy products and cooking oil with effect from January 1, 2013.”

Kalonga said with the current liquidity constraints bedevilling the economy, it has become more and more difficult to pass on all the costs to the consumer.

“Manufacturers and retailers will have to absorb some of the costs to remain competitive.Therefore, my view is that the inflation projection of four to five percent is still achievable,” he said.

In his 2013 budget presentation, Finance minister Tendai Biti said he expected inflation to be contained within single digit levels on account of prudent macro-economic management through fiscal austerity, improved supply and competitiveness.

While the inflation figures continue to exhibit stability, companies continue to experience liquidity challenges with workers demanding higher wages.

As a result, most Zimbabwe companies are high cost producers due to continued use of outdated technologies and low capacity utilisation, which precludes them from enjoying economies of scale.

Consequently, local companies cannot compete with their counterparts in the region and overseas that use the latest technologies.

According to the Confederation of Zimbabwe Industries survey released recently, capacity utilisation in the country’s troubled manufacturing sector declined by 13 percentage points to 44,2 percent, highlighting the extent of depression in the sector.

The survey, which warned of tough times ahead, indicated that growth registered in the past three years had fizzled out as negative macroeconomic fundamentals overshadowed on-going efforts to rebuild the economy. - Business Writer

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