Rising inflation dampens festive season mood

HARARE - Zimbabweans have been through a tough year thanks to bad politics and rising inflation, which rose from 3,5 percent in January to an alarming 31,01 percent in November. 

The rising inflation, which has seen prices shoot beyond the reach of many Zimbabweans, has compounded the situation for a country that is currently battling cash, fuel and medicine shortages, company closures and high unemployment rates. 

Chris Mugaga, Zimbabwe National Chamber of Commerce chief executive, said the economic situation is worse off than it seems.

“The official data being given is flawed. Real feel inflation is at least 60 percent because they present the official data in United States dollars without taking the exchange rate into account. We could very well close 2018 with an inflation of close to 70 percent,” he said.

A largely informal country, with unofficial unemployment levels estimated at over 90 percent, Zimbabwe has, for the second time in the same generation, sunk into the dizzying despair of uncontrollably high prices.

While World Bank data shows that the majority of Zimbabweans are living on less than $1 per day, the situation has escalated with many formally employed graduates now looking at opportunities outside the country.

“Look, it is hard enough to get a job in this God-forsaken country. Now, the money that I am getting cannot even buy US$200 on the black market. As if that is not enough, I have got black tax to pay because this government has been unable to provide jobs for my extended family. It is bleak. I am definitely leaving next year for better prospects,” said Sandra Khumbula, an accounting graduate formally employed but struggling to make ends meet.

At the open of the last quarter of 2018, local shops experienced a massive run with consumers panic buying against rising United States dollar premiums on the parallel market.

A two kilogramme packet of rice has risen from an average of $2 to $5 average over the past four months, now regarded as liquid gold, cooking oil spiked to an average of $8 in the few retail shops it is available from a $3,50 average four months ago.

The 2008 nightmares of having shop attendants change prices at till points has come crashing into reality for many Zimbabwean shoppers. 

Disappointingly, economists do not see a near end to the inflationary scourge despite noncommittal pronouncements from Finance minister Mthuli Ncube that “inflation will go down”.

Analysts at Equity Axis (Equity) contend that Zimbabwe got into the present situation because government allowed RTGS to grow astronomically while not growing the same monetary base in terms of M1 (notes and coins) notably US dollar balances. 

“The variance between the two means as and when depositors demand hard cash for settlement of import stock and or other service payments, from their “at par” balances, that money would not be readily available. 

“Keeping a stable base of broad money supply in line with real hard cash would have meant a slower economic growth and attendant slower growth in company earnings and individuals’ income. Demand for goods and services would have remained stable and growing at a slower but managed rate. 

“This stable aggregate demand would have also resulted in steady demand for forex to suit foreign import payments. It would have solved two things at once, one being equilibrium value through low RTGS supply and lower aggregate demand, in turn a lower demand for USD,” Equity said in a recent note.

Retailers are not smiling about the situation either as they have struggled to replace stock.

Denford Mutashu, Confederation of Zimbabwe Retailers’ president, said while demand had surged on the back of panic buying, sales volumes did not count for much as they were dominated by electronic money, whose value has been free-falling against the greenback.

“The operating environment in 2018 was tough… Things turned for the worse beginning October as policy inconsistency set in. The cost of money jumped from October with parallel market premiums hitting the roof in a scenario reminiscent of a hugely informalised economy. 

“Foreign currency procurement for restocking and importation of goods and services posed the greatest threat to an otherwise growing economy. Business kept grappling with replacement value as the Real Time Gross Settlement (RTGS) balances and bond notes value depreciated towards year end,” Mutashu said.

Jee-A Van Der Linde, an economist with NKC Economics, attributed the rapid rise in consumer prices to a number of factors, including a large amount of unwarranted and incessant state spending is fuelling inflation.

“This is considered an issue because the government is spending money that it does not have. Secondly, we also believe that Zimbabwe’s large informal economy — that has manifested itself as a result of the currency shortage — has caused consumer prices to be heedlessly understated in recent times,” the economist said.

Noting inflation data released for the past two months was lean towards a more accurate reflection of the change in consumers’ spending power, Van Der Linde said the uncertainty over the size of the informal economy renders official figures unreliable.

“Pressures have been mounting for some time now, as the currency shortage along with other factors appear to have created the perfect storm, with risks to Zimbabwe’s inflation outlook tilted to the upside,” the economist said.

NKC also anticipates inflation to continue spiking on the back of shortages of key inputs such as food, fuel and electricity.

“Given the heightened levels of consumer distrust, we believe that November’s inflation print will lead to more angst, while increased demand for foreign currency and the two percent tax on electronic transactions will keep prices elevated,” Van Der Linde said.

Brains Muchemwa, Oxlink Capital’s managing director, said inflation was going to keep rising unless government, through the RBZ, continued to subsidise private expenditure by allocating foreign currency for such critical imports as crude edible oils, grains, fuel and fertiliser.

The southern African nation – which relies mainly on the US dollar since scrapping its own currency in 2009 to halt hyperinflation that saw prices double every day – has steadily seen inflation creep up from a deflationary phase that lasted over a year.

This comes as local think-tank, Hucklib Limited, warned the country was going to lapse into hyperinflation by year end due to a number of factors, like parallel cash market premiums.

“… The rise in the general price level was also as a result of government increasing the civil service wage increase and its high election spending. There was also an increase in the price of fuel, which is the biggest single import for Zimbabwe.

“Speculative pricing is also the order the market lately, as traders who stock their merchandise for a long period of time also budget for premium increases in their pricing models.

“Going forward, inflation for the month of August or September is likely to breach the all-time dollarisation era high of 5.3 percent recorded in May 2010,” the think-tank said.

Already internal inflation rates for various companies are at levels as high as 60 percent, according to independent data, amid indications 2019 does not have much to offer the inflation-ravaged country.

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