Bond notes value fall spikes inflation

HARARE - Zimbabwe’s inflation has moved into positive territory for the first time in two years as a result of depreciating value in bond notes, a leading think-tank said yesterday.

Cape Town-based NKC African Economics said consumers were absorbing the increase in prices of goods and services as the surrogate currency has lost 30 percent in value, despite attempts to rubbish the apparent fall in value by monetary and fiscal authorities in Harare.

The consumer price index (CPI) increased last month, the first upward movement in more than two years.

According to the Zimbabwean Statistical Office (ZimStat), the country recorded inflation of 0,06 percent year-on-year (y-o-y) in February, compared to deflation of 0.65 percent y-o-y in January.

While John Mangudya, the governor of the Reserve Bank of Zimbabwe (RBZ), stated recently that he expected inflation to move into positive territory in 2017 for the first time since September 2014, supported by the anticipated increase in international oil prices and a recovery in the domestic economy, NKC African Economics said it believed that the recently issued bond notes may also be a contributing factor.

In an attempt to ease cash shortages, the government introduced bond notes — at par with the US dollar — in November 2016.

These notes are limited for domestic commerce, as traders still require US dollars to procure goods from abroad.

Zimbabwean firms resorting to the black market to get US dollars pay a premium of up to 25 percent.

As a result, retailers have low confidence in the bond notes and place different price tags on goods dependent on the currency used to pay for the item.

“The premium is ultimately absorbed by consumers through final goods and services price increases,” NKC analyst Chantelle Matthee said.

But Mangudya has vehemently denied that the value of bond notes had tumbled.

“Have you seen twin-pricing in OK (supermarket) or other major outlets? We can’t talk of backdoor shops . . . Go to the formal market, there is no weakening of value there . . . we can’t talk of out-layers,” he said in an interview last week.

Some supermarkets are charging three to five percent more for goods bought using debit cards.

Former Finance minister Tendai Biti,, credited with overseeing Zimbabwe’s impressive economic recovery between 2009 and 2013, said multiple exchange rates were now in existence in the market, adding that the government was effectively running “a Ponzi scheme” — a form of fraud.

Zimbabweans are out rightly refusing to accept the bond notes as equivalent to US dollars.

This comes as US dollars have almost vanished from the open market as banks refuse to dispense the currency to clients.

“We therefore expect consumers to increase the uptake of bond notes due to there being few alternatives — in addition to pressure and incentives from government,” NKC — a subsidiary of UK-based economic advisory firm Oxford Economics said.

The RBZ has stated that no further bond notes will be released soon, in a bid to avoid inflationary pressures through printing money.

“However, even if the central bank stayed true to this announcement, bond notes will gradually depreciate in value against the US dollar, which will add upward pressure on inflation,” NKC warned, adding “we therefore currently predict that inflation will average around the 1 percent level this year.”

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