Harare — For second month running, the year-on-year inflation rate has slackened, dropping 1,2 percentage points to 4,1 percent from 5,3 percent in June, the Zimbabwe Statistical Agency announced yesterday.

This is in line with Government's projected target of 4,5 percent by year-end on the back of increased production in the mining and agriculture sectors. For the first five months of the year, the rate of inflation was rising giving fears of double-digit figures by the end of this year but the June and July figures have shown significant easing.

However, a drop in the rate of inflation does not imply a drop in the prices of goods and services, but the magnitude of the rate at which prices increased over 12 months. Zimstat, formerly the Central Statistical Office, showed that month-on-month inflation rate for July remained unchanged at -0,1 percent.

This means that prices as measured by the all items CPI remained unchanged between June and July. Latest figures show that fiscal authorities are within the targeted year-on-year rate of inflation of 4,5 percent. During the period under review food and non-alcohol beverages inflation, prone to transitory shocks, stood at 7,1 percent while non-food inflation was at 2,9 percent.

Month-on-month, food and non-alcohol beverages inflation stood at -0,03 percent in July, shedding off 0,058 percentage points on the June rate of 0,06. Zimstat said the CPI for the month ending July stood at 95,1 compared to 95,2 in June 2010 and 91,3 in 2009.

The country's inflationary pressures eased in the second half of the year after pressure picked up during the first half of 2010 with year-on-year inflation recording 0,7 percent in January, one percent in February, 3,5 percent in March, 4,8 percent in April and 6,1 percent in May.

The upward movement of inflation in the first half of the year was largely attributed to the strength of the South African rand against the United States dollar which resulted in imported inflation in Zimbabwe. South Africa is one of the country's largest trading partners and any price movement in that country will have an effect on Zimbabwe.

The rand has since stabilised, easing inflationary pressures in the country. Tariff adjustments and wages awarded in the first quarter increased costs of production. Companies have also increased production from levels of about 40 percent to about 55 percent raising production of locally made goods.

Analysts say inflation will continue on the decline into 2010 buoyed by the sale of diamonds, participation of the capital market as well as increased production across all sectors of the economy. However, the poor liquidity conditions across all sectors will haunt progress as companies and public utilities are still undercapitalised.