Zim deflation persists

HARARE - Zimbabwe has remained in deflation despite gaining a marginal 0,29 percentage points in January due to a slight increase in food and non-alcoholic beverage prices.

Figures released by the Zimbabwe statistical agency (Zimstat) on Monday revealed that the year-on-year inflation rate for the month of January 2016 — as measured by the all items consumer price index (CPI) — stood at a negative 2,19 percent from the December 2015 rate of -2,47 percent.

“This means that prices as measured by the all items CPI decreased by an average of –2,19 percentage points between January 2015 and January 2016,” Zimstat said.

The year-on-year food and non-alcoholic beverages inflation prone to transitory shocks stood at –3,96 percent whilst the non-food inflation rate was -1,34 percent.

The statistical agency noted that month-on-month inflation rate in January 2016 was –0,05 percent gaining 0,06 percentage points on December 2015 rate of –0,11percent.

Zimbabwe has struggled with deflation since the last quarter of 2014 — reflecting the constraining effect of tight liquidity conditions being experienced in the country.

Reserve Bank of Zimbabwe (RBZ) governor John Mangudya said the persistent negative inflationary mode is underpinned by the continued deflating effects on both food and non-food prices, against the backdrop of waning aggregate demand due to significant externalisation taking place in the country.

“The slowdown in food inflation experienced in 2015 was mainly driven by the fall in prices of bread and cereals, meat, vegetables and oils and fats sub-categories,” he said.

Other sub-categories that contributed to the decline in food inflation include milk, cheese and eggs, fish and sea food, and non-alcoholic beverages.

Regarding non-food inflation, declines in housing, water, electricity, gas and other fuels, furniture, household equipment and maintenance, transport and communication contributed to the negative rate.

Mangudya, however, said the central bank was committed to addressing negative inflation by plugging leakages of liquidity from the economy.

“During the course of 2015, for example $684 million was externalised by individuals for various purposes that include donations, investments, and account transfers among others.

“In addition, $1,2 billion export sales proceeds were externalised by firms.

“Circulating this liquidity within the national economy has a great multiplier effect and has a positive contribution to boosting aggregate demand,” he said.

Despite these measures from the central bank, research firm NKC says Zimbabwe needs more foreign funding from multilateral organisations and foreign investors, with the latter dependent on making structural reforms and reducing political risk.

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