Time to deal with deflation

HARARE - Zimbabwe has been experiencing deflationary pressures since October 2014 and up to now, not much has been done to stimulate production and arrest deflation.

In normal circumstances, deflation — the opposite of inflation and refers to a fall in prices — could be a good thing as it mean the majority of the population would be in a better position to purchase goods and services.

But in our present economic situation, deflation is having a devastating impact on individual pocketbooks and the broader economy.

Our greatest fear at the moment is that if economic activity stays slow, and unemployment rises, consumers will become more cautious, making them more reluctant to spend thus condemning the country on a path to recession.

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.

As such, a prolonged period of deflation would be crippling for Zimbabwe as both public and private debts are currently 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 United States 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 weakness in the economy and expectations that prices may continue to fall.

But with President Robert Mugabe’s Zanu PF administration failing to execute a clear and concise succession plan in the liberation war movement, the economy has been left exposed as fatal dogfights to succeed the increasingly frail nonagenarian increase by the day.

The “elected” Zanu PF leadership ceased caring for the people a long time ago and all they think about is lining their already fat pockets at the expense of the struggling masses that ushered them into office.

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

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