Published by the government of Zimbabwe
Jeffrey Gogo
11 April 2006
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Harare — ECONOMISTS say the absence of effective measures to combat inflationary pressures could deal Zimbabwe's inflation battle a body blow, at least until the beginning of the third quarter.
Although the food situation is projected to improve this year on the back of a good agriculture season, economists believe inflation-fighting policies have been half-baked, and might fail to contain inflation. A recent economic report by a Harare financial firm noted: "The outlook for inflation remains grim in the absence of any effective measures in place to curb inflationary pressures. "In fact, recent policies announced such as the gazetting of 1 500 percent increase in the maize producer price, as well as subsidised tobacco price will only serve to stoke inflation.
"To compound the situation, the aggressive mopping-up campaign instituted by the Reserve Bank will have negative connotations on money supply growth which is now entirely emanating from the public sector." Over the last two months, the central bank has been issuing short-term Treasury bills to wipe out excess liquidity in the market, and the strategy appears to have worked, as the market has persisted in the de ficit.
But worrying March inflation figures have sparked new calls from analysts for the apex bank to tighten its inflation-fighting policies, as the scourge is threatening to get out of hand. The Central Statistical Office reported last Friday that yearly inflation for March had climbed to 913 percent from 782 percent with the monthly rate coming down to 19,8 percent from 27,5 percent.
However, the CSO did not give reasons for the slowdown in the month-on-month figure. Some economists have predicted that inflation could peak at around 1 100 mid-year before coming off to levels just under 450 percent by year-end. Analysts say the country might have experienced an above normal rainy season -- implying a bumper harvest -- but production was severely constrained by inadequate preparations, and unavailability of critical inputs such as fertilizer.
"Prospects for a meaningful recovery in the local economy during 2006 remain elusive with agriculture and manufacturing yet to respon d positively to the policy initiatives aimed at reviving the sectors," says another economic report by Interfin Securities. "Inflation is certain to break the four-digit mark in the second quarter as resurgent pressures continue unabated.
"While there might be a seeming improvement in maize availability during the harvest season followed by temporary price stability, the projected deficit suggests that there will be continued cost-push inflation pressure arising from food requirements beyond the second quarter." Among the challenges affecting the economy are high inflation, shrinking gross domestic product, decline in the real value of the local currency and high unemployment.
Of late, the country has been subjected to a spate of massive price hikes, salary adjustments and tariff increases coupled with critical foreign currency shortages that feed heavily into inflation. It is against this backdrop that economic experts believe Zimbabwe is faced with a Herculean task in its fight against inflation.
The key to reining in CPI inflation lies in prudent exchange rate management and putting a lid on speculative demand, analysts say. Monetary control has also remained below desired levels with expansionary policies still arising from the need to fund the country's agricultural sector. This is despite new targets set by the central bank to slow down the rate of money supply growth to levels in line with inflation expectations. Some economists have urged monetary authorities to adopt stricter policies to guard against further increases in inflation.
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