19 September 2012

Zimbabwe: Inflation Drops to 3,63 Percent

ZIMBABWE'S headline inflation has maintained a downward momentum from the previous month, going down 0,31 percent to 3,6 percent in August as economic activity remains depressed. Low or moderate inflation is generally attributed to fluctuations in real demand for goods and services. Latest figures from the Zimbabwe National Statistical Agency show that the annual rate of inflation went down rather significantly in August after taking a marginal dip in July.

"The year-on-year inflation rate for the month of August 2012 as measured by the all-items Consumer Price Index stood at 3,63 percent on the July 2012 rate of 3,94 percent," reported Zimstats.

In normal situations, a decline in the rate of inflation would be welcome. But with the country currently facing significant inflationary pressures emanating from - among others - the poor harvest in the current season, demand for rental accommodation and increasing utility prices, observers believe the downturn in annual inflation lately is largely due to poor economic performance.

Analyst Mr Trust Chikohora said the low inflation is due to the fact that the demand side of the economy has been depressed since the beginning of the year and this is reflected through reduced appetite for goods and services in the economy.

"Demand is generally depressed as consumers have very limited cash-flows due to the prevailing liquidity crunch. Money supply continues to be low and availability of credit remains on the low side. The market remains a buyers' market and so prices tend to be subdued," he said. Since the beginning of the year, inflation has ranged between 4,3 percent (the highest, in January) and 3,63 percent (the lowest, in August) and largely remains within the 5 percent target for the year. Zimstats figures show that food and non-alcoholic beverages are the major contributors to annual inflation which is prone to transitory shocks at 4,20 percent, while non-food inflation stood at 3,38 percent.

Meanwhile, month-on-month inflation also went down during the period under review.

"The month-on-month inflation rate in August 2012 was 0,18 shedding, 0,41 percentage points on the July 2012 rate of 0,23 percent," said Zimstats.

The month-on-month food and non-alcoholic beverages inflation stood at -0,11 percent in August 2012, shedding 0,09 percentage points on the July 2012 rate of -0,02 percent. The month-on-month non-food inflation stood at -0,21 percent, shedding 0,54 percentage points on the July 2012 rate of 0,33 percent.

In terms of outlook, observers contend that the inflation rate will remain in the targeted band, although upward shifts can be expected in the interim.

"Lately, we have seen some increases in the fuel price, but this may not yet have had an impact on the general level of prices," said Mr Chikohora.

"Such inflationary pressures may have some impact later on in the year and as we get into the festive season, especially with cash boosts like bonuses which usually drive spending. However, we should still close the year with inflation levels of not more than 5 percent as forecast in the Budget."

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