Zim sinks deeper into deflation

HARARE - Zimbabwe's annual inflation for the month of March lost 0,09 percentage points to close the month at negative 2,31 percent from a negative 2,23 percent in February as the country sinks deeper into deflation. 

Figures released by the Zimbabwe Statistical agency (Zimstat) on Friday showed that consumer prices as measured by the all items CPI decreased by an average of –2,31 percentage points between March 2015 and March 2016.

“The month-on-month inflation rate in March 2016 was –0,12 percent shedding 0,02 percentage points on February 2016 rate of –0,10 percent,” Zimstat said.

The latest data comes as the World Bank last week predicted that Zimbabwe will remain in deflation for the rest of this year due to lack of strong economic reforms needed to stimulate the country’s moribund economy.

Like Britain, Japan, the US and other nations dealing with the consequences of weak demand and cheap oil, Zimbabwe has been menaced more by the prospect of falling prices since March 2014.

Market experts said the continued price reductions on selected food items and the weakening rand against the United States dollar are contributing to the negative inflation which is now feared to be full blown deflation.

Zimbabwe, without a currency of its own, trades mainly in United States dollars, though other currencies including the rand, euro and British pound are also legal tender.

The Zimbabwe dollar, abandoned in 2009 after inflation peaked at about 231 million percent, isn’t likely to be reintroduced until the economy normalises.

Although analysts consider that the slow economic growth, weakening aggregate demand, high unemployment, tight liquidity, increased loan defaults and reduced lending by banks to productive sectors are all signs of deflation, the central bank reckons that the country is experiencing disinflation. 

Reserve Bank of Zimbabwe governor John Mangudya recently said price reductions in the national economy was a necessary process towards correcting the high prices that were obtaining in the country.

The central bank chief surmises that the current negative inflation reflects the dampening of inflationary pressures in the economy.

Mangudya reasons that this is on the back of cheaper imports — mainly from South Africa — and limited access to credit lines by key productive sectors of the economy.

Disinflation is a slow-down in the rate of price inflation but does not mean prices are declining. Deflation, however, is a situation when the overall price levels decreases so that the inflation rate becomes negative.

In most cases, this results in a decrease in demand in the economy, which can lead to an economic depression.

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