Zimbabwe: Fuel Price Hikes Stoke Inflation

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The frequent hike in fuel prices will only increase inflationary pressures, with analysts projecting it to reach 250% by year-end.

The Zimbabwe Energy Regulatory Authority this week raised fuel prices by 23% for diesel from ZW$5,84 to ZW$7,19 and 22,4% for petrol from ZW$6,10 to ZW$7,47. Retailers have announced that the prices of goods will shoot up by 10% as a result.

This comes at a time the country is in the throes of a deepening economic crisis characterised by a debilitating liquidity crunch, foreign currency shortage, low production and prolonged power cuts which last up to 17 hours, crippling the operations of industry.

Economist Prosper Chitambara said the latest increase in fuel will increase inflationary pressures, projecting that it will end the year on 250%. Inflation currently stands at 175,66%.

"It will have systemic knock on effect and this is not the last hike as the minister(Finance minister Mthuli Ncube) has said the fuel price will be increased gradually until it is line with regional prices. Inflation should reach 250% by the end of the year," Chitambara said.

He said the projection by government that inflation will be reduced to double figures by the end of the year is unrealistic given the current challenges which include the prolonged power cuts that have pushed up production costs.

Chitambara said inflation could decline starting from next year but only if supply side constraints are addressed by government.

Economist John Robertson concurred that inflation will breach the 250% mark by the end of the year.

"I think it is possible that inflation will end the year on 250%," Robertson said. "There will be further repercussions from the demand in wage increases and the high cost of production."

Roberston however said if the exchange rate can be stabilised it could lead to the amelioration of price increases.

Economic research outfit Econometer Global Capital has projected inflation to go up to over 400% by the end of the year.

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