National Tyre Services warns of inflation

HARARE - Zimbabwe's largest tyre retailer has warned the government of rising inflation in the coming few months due to lack of foreign currency.

National Tyre Services (NTS) chairman James Moyo last week said it was critical for the country to come up with strategies to inject fresh capital into the economy.

“The continuing economic challenges have resulted in general down-trading across major consumer goods including tyres with a consequential impact on margins,” he said.

Moyo noted that although Statutory Instrument 64 of 2016 attempted to curb unregulated imports of finished goods, the serious shortage of foreign currency was limiting the intended benefits of this policy initiative for local manufacturers.

“The recent introduction of bond notes is aimed at easing the liquidity problems being faced by the local economy. However, for entities that rely on imported raw material inputs, the dilemma of delayed foreign payments remains a significant threat to business viability as stocking levels diminish and foreign suppliers tighten trading terms,” he said.

This comes as shortages on some product lines such as fuel, diapers, sanitary pads and perfumes are starting to emerge.

“The lack of foreign currency, if not properly managed, will lead to shortages which will result in inflation creeping in with the resultant effect of reducing living standards and thus further lowering demand,” Moyo added.

Zimbabwe’s inflation has been in the negative for the past two years due to depressed demand being stroked by deteriorating economic conditions, but there are renewed fears that the introduction of bond notes and lack of foreign currency might result in rampant inflation.

South Africa-based research firm NKC Economics (NKC) recently said overprinting bond notes would put a strain on local prices leading to high inflation.

“Should government start printing more bond notes than it has backing for in United States dollars in order to stimulate economic activity, the risk exists that the bond notes could lose value fairly quickly, which would put upward pressure on the domestic price level,” NKC economist Jared Jeffery said.

NKC’s warning comes after the country’s deflationary pressure increased marginally in November, according to the Zimbabwe National Statistics Agency (Zimstat)’s most recent consumer price index (CPI) publication.

Headline deflation accelerated from 0,95 percent year-on-year (y-o-y) in October to 1,09 percent in November.

The food and non-alcoholic beverages sub-index, which carries a 33,5 percent weighting in the CPI basket, decreased by 1,54 percent y-o-y in November compared to a decrease 2,03 percent y-o-y in October.

Non-food deflation, meanwhile, came in at 0,89 percent y-o-y in November compared to 0,45 percent y-o-y in October and on a month-on-month basis, inflation slowed marginally from 0,09 percent in October to 0,02 percent in November.

Early this month, Finance minister Patrick Chinamasa said government expected inflation to average 1,1 percent next year compared to -1,5 percent this year.

“While food price deflationary pressures continue to ease — in large measure due to supply side constraints brought about by adverse weather conditions, foreign currency shortages and import restrictions — the November inflation reading indicates that the strong US dollar relative to the rand continues to keep upward price pressures subdued.

“In addition, the issuance of bond notes have yet to alleviate domestic liquidity shortages to a significant extent,” Jeffery said.

Comments (1)

I find this amusing, A tyre company warning of the dangers of inflation!

citizen - 11 January 2017

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