20 October 2017

Zimbabwe: Economists Question Inflation Stats

A debate has arisen over whether the country's statistical agency is cooking up inflation figures against a wave of price increases that has left consumers restive.

Bernard Mpofu

While Zimstat says inflation has been gradually increasing and has swelled to about 1% in September, independent economists have however questioned the figures, arguing that Zimbabwe's inflation could be approaching double-digit figures.

Early this month, Zimbabwe risked lurching into a fresh meltdown amid rising inflation, shortages of some basic commodities in supermarkets and fuel. This came as bond notes have lost nearly 50% of their value on the informal market as the economy continues to face treacherous headwinds.

Official figures show that headline inflation swelled towards 1% as prices rose by an average of 0,78% in September against the same period last year.

Following the crashing of the bond notes on the parallel market, prices shot up in most supermarkets triggering a wave of panic-buying and fuel shortages, which were later contained.

Among the key drivers of inflation in September were food and non-alcoholic inflation which went up 2,49%. The cost of raw materials for household products such as edibles also shot up during the same month, eroding the consumers' purchasing power.

Research firm Equity Axis, in a weekly advisory note, questioned the authenticity of inflation figures released by Zimstat.

"In our monthly inflation update for August, we highlighted that the official statistics were grossly misrepresenting the reality of inflation in Zimbabwe. We estimated that inflation was now between 8% and 10% given our assumptions," the research firm said.

"We went further pointing that at the rate at which the RTGS (real-time gross settlement) and bond notes are being discounted in the parallel market, the rate of inflation will go up at a faster pace. True to the forecast, prices notched up around the 20th of September as producers and retailers reacted to the market panic at the spontaneous shift in parallel market exchange rate.

"While pockets of differentiated pricing existed at a lower scale before September, the trend became common market-wide with legit shops and service providers adjusting prices accordingly in anticipation of supply disruptions due to higher exchange rates."

Experts contend that the absence of macro-economic stability in Zimbabwe due to fiscal misalignment and the overreliance of monetary policy to restore economic order has also stoked inflation.

"We are therefore likely to see a sustained inflationary period and a much lower than anticipated economic growth rate," Equity Axis further argued.

Econometer Global Capital in its research paper titled Unpacking the Inflation Myth, also questioned Zimstat figures arguing that food inflation has always been in positive territory since February. Food items constitute 34% of the consumer basket with bread and cereals alone constituting 11%.

"On a month-on-month basis, inflation rose to 0,38 from -0,13% in August 2017. Official data fails to justify the reality of an increase in prices when paid for using electronic channels and bond notes. There is growing disparity between official data and what is happening on the ground as official data measure inflation using quoted and displayed hard currency cash prices," the research firm said.

"Using consumer basket tracked by Econometer Global Capital, year-on-year inflation surpassed 65% in September 2017 reflecting the sudden increase in prices caused by panic-buying in the month of September 2017. Notable increases were on fast moving consumer goods which increased by more than 100% in September 2017 on a month-on-month basis. This growing disparity between official inflation data and what is happening on the ground highlights the growing shortage of cash in circulation as retailers generally display cash prices."

Renowned currency economist Stephen Hanke said last year's introduction of bond notes to ease cash shortages had fuelled inflation.

"At present (09/29/17), Zimbabwe's annual inflation rate has soared to 242,72%," Hanke wrote in the Forbes magazine.

"Under this dollarised regime, Zimbabwe's fiscal authorities could no longer demand that the Reserve Bank of Zimbabwe supply the government with credit. This hard budget constraint became too onerous for the free spending government to abide by. In consequence, Zimbabwe's government has employed Harry Houdini's magic and circumvented the hard budget constraint imposed by dollarisation. It has done so by creating a new fake dollar, which is referred to as the 'new Zim dollar'. Not surprisingly, this new Houdini creation is rapidly becoming worthless."

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