Zim losing war on deflation

HARARE - Latest inflation figures released by the Zimbabwe statistical agency this week have all but confirmed our worst fears that President Robert Mugabe’s Zanu PF administration is losing the battle to control deflation.

According to Zimstat, the country’s annual inflation rate for the month of October declined to -3,29 percent from a negative 3,11 percent registered in September this year.

Although government continues to deny that we are now into full blown recession preferring to call it price correction, information on the ground proves otherwise. Zimstat measured year-on-year deflation in 17 out of the 21 months ending October 2015.

In the 15 months ending October 31, 2015 the statistics agency also recorded 12 negative month-on-month changes in the Consumer Price Index, confirming that base effects cannot be blamed for the annual deflation phenomenon.

With the country’s economy not expected to register any significant gains this year due to lack of strong economic policy reforms, declining consumer prices are having an adverse impact on local productive capacity with Zimbabwean companies producing food and consumer goods having a tough time competing with cheaper imports from South Africa.

While deflation — defined as a fall in the general price level — is not necessarily bad, regular periods of deflation or low inflation can lead to economic stagnation and periods of high unemployment.

This is because deflation can discourage spending because things will be cheaper in the future. Deflation can also increase real debt burdens — reducing the spending power of firms and consumers.

A prolonged period of deflation would be crippling for Zimbabwe because both public and private debt are extremely high. The real burden of debt, which is generally fixed in nominal terms, rises when prices fall.

The worry about Zimbabwe slipping into a prolonged period of deflation is that the monetary policy levers to stimulate growth no longer exist in a dollarised environment. Further, the strong economic recovery in the US will continue to put further pressure on interest rates.

Zimbabwe needs an expansionary monetary policy and quantitative easing to stimulate growth and development. A brief burst of good deflation driven by the oil price fall could become a sustained period of bad deflation based on underlying weaknesses in the economy and expectations that prices may continue to fall.

But with Mugabe failing to execute a clear and concise succession plan in his former liberation war movement, the economy has been left exposed as fatal dogfights to succeed the increasingly-frail nonagenarian increase by the day.

Our leaders simply no longer care about the economy or the people who elected them into power.

Only a well-protracted economic revolution and change of leadership will free this country from the shackles of Zanu PF’s mismanagement of the economy.

Comments (1)

ZanuPF's) incompetence with the misery it brings may be our painful salvation! We will never see prosperity under ZanuPF rule!

Nooshie - 22 November 2015

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