HomeOpinion & AnalysisPrices continue to rise despite inflation dip

Prices continue to rise despite inflation dip

Godfrey Marawanyika

ALTHOUGH inflation has shown signs of declining in the past four months disposable incomes for consumers are no better as prices of goods continue to skyrocket.

Inflation, the loss of purchasing powe

r of money largely because of excessive money growth in circulation, can be reflected in the rise of prices without an increase in the value of goods and services purchased.

Last year, planning to purchase goods based on the previous price virtually became impossible as the commodities changed price in a matter of days and, at times, hours.

Even with the marginal decline in inflation from 622% to 583% industries such as the newsprint sector have not benefited because of the monopoly enjoyed by Mutare Board and Paper Mills who are the sole suppliers of newsprint in the country.
The supplier has been reviewing the cost of newsprint quarterly.

Some of the commodities which last year increased almost on a weekly basis such as property, vehicles and basic foodstuffs such as bread, sugar, cooking oil, meal-meal and salt, are now relatively stable.

But analysts say the decline in inflation over the past four months can only be sustained if this year’s agricultural season records a bumper harvest.

Zimbabwe Financial Holdings Ltd (Finhold) senior economist Best Doroh said the benefits of inflation declining would only be felt towards year-end.

“While the prices of goods have been coming down and stabilising it is still too early for consumers to benefit from the decline,” Doroh said. “If inflation declines significantly that would be good news for consumers, but this can only be felt towards the end of the year, especially around the festive season.”
Zimbabwe’s year-on-year inflation has declined from a high of 622,8% in January this year to the current 583%.

At the same time month-on-month inflation that used to average 18% in 2003 and reached a peak of 33% in November last year, slowed down to 13,7% in January, 6% in February and 5,9% in March.

Doroh said there was need for increased productivity in the agricultural sector to help reduce inflation.

“If this year’s agricultural production is a good one that would assist in bringing down inflation,” she said. “But the bumper harvest must not just be a one-off thing.”

When Reserve Bank of Zimbabwe (RBZ) governor Gideon Gono took over in December last year he announced that inflation would be his number one priority.

In tackling inflation, Gono’s task would also help to protect real incomes for both households and that of government.

However, one of the major problems which Gono is facing is the high rate of taxation which leads to demands by workers, which in turn puts pressure on employers to also revise product prices up.

Zimbabweans are taxed at the rate of 45% of their net gross incomes, making them one of the most highly-taxed societies in the world.

Unlike his predecessors Gono has managed to win political support and tame government appetite for easy money. Side by side with Gono’s monetary policy, government has launched its own anti-graft crusade to restore normalcy in the country’s business environment.

In the five months with Gono as governor, government only abused its overdraft facility once — in March by $80 billion, when it accessed $308 billion instead of the stipulated $228 billion.

In his monetary policy review last week Gono said government was now living within its means to the extent that at times it has a small surplus in its current account.

Kingdom Financial Holdings chief economist Witness Chinyama noted that falling inflation would have a bearing on disposable incomes.

“With inflation coming down, consumers are now able to plan how to spend their incomes,” Chinyama said. “This is unlike last year when one could not plan what to buy because of erratic price increases.

It should be noted that the sustained decline in inflation also depends on the availability of foreign currency to check exchange rate volatilities.”

He said the greatest challenge facing the country was how to attract foreign direct investment.

Another economist with a bank however warned that due to high money supply growth, inflation might not decline that easily.

“Inflation will not just disappear like that unless we are able to rein in monetary expansion,” the economist said.

“Increases in fuel and electricity prices, wages and salaries could also add to inflationary expansion during the course of the year.”

The economist said however that if inflation continued falling largely due to money market surpluses, interest rates which in January breached the 900% mark could start to decline in line with inflationary trends.

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