Zim deflation breaks records

HARARE - Zimbabwe has remained in deflation for the past two years despite government’s effort to stimulate local production, latest figures show.

Data released yesterday by the Zimbabwe Statistical Agency (Zimstat) revealed that the country’s year-on-year inflation gained 0,16 percentage points in December 2016 to close the year at -0,93 percent.

“This means that prices as measured by the all items Consumer Price Index decreased by an average of -0,93 percentage points between December 2015 and December 2016,” Zimstat said.

Market experts, however, said the country, which entered into full blown deflation in October 2014, is expected to struggle with negative inflation for the foreseeable future as demand shrinks and cash-strapped companies lay off staff or stop paying wages.

“The supply of dollars in Zimbabwe is limited and their velocity of circulation is low. The result is that prices are falling and economic activity is stagnant,” Rhodes University researcher Gavin Keeton said.

Like Britain, Japan, the United States and other nations dealing with the consequences of weak

demand and low metal prices, Zimbabwe is menaced more by the prospect of falling prices than by rising ones.

The country stopped printing the Zimbabwe dollar in 2009 and moved to a hard-currency regime as a way of dealing with hyperinflation, which reached a peak of 231 million percent in August 2008.

Having swapped the world’s weakest currency for its strongest, Zimbabwe begun to import deflation.

The prices of goods trucked across the border from South Africa, where the rand has plunged significantly against the dollar in a year, have fallen.

Keeton noted that the weakening of the South African rand against the greenback will compound Zimbabwe’s deflationary woes.

“Neither of the traditional tools for economic stimulus — monetary policy (interest rates) and fiscal policy (government spending and taxes) — are available to the Zimbabwean government.

“The weakness of the banking system renders monetary policy ineffective. And as the government is already struggling to pay its wage bill, it cannot increase spending or cut taxes,” he added.

Economic analyst Francis Mukora said to increase the available dollar supply, Zimbabwe needs to export more than it imports, or attract foreign inflows.

“A trade surplus is unlikely when domestic production is so weak and the dollar is strengthening so rapidly against the rand. Attracting capital inflows requires policy changes that are politically unacceptable,” he said.

Finance minister Patrick Chinamasa said the decline in domestic prices during 2016 was driven by a combination of continued weakening in domestic demand, depreciation of the South African rand against the United States dollar, and subdued international oil prices.

“On balance, marginal deflation is expected in 2017, with prices responding to the anticipated improved level of domestic production and, hence, the prevailing liquidity situation in the country,” he said.

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