Zimbabwe: Monthly Inflation Eases

16 October 2019

The month-on-month inflation rate for September shed 0,35 percentage points on the August rate to 17,72 percent in September, as inflationary pressures eased briefly on relative exchange rate stability.

While the average monthly inflation rate softened marginally, the monthly rate for food and non-alcoholic beverages actually rose faster than the prior month after climbing up by 1 percentage point.

The average monthly decline though remains significantly low for the envisaged down spiral to the 10 percent level forecast by Finance Minister Mthuli Ncube in his 2020 pre-budget strategy paper released last week.

According to the Zimbabwe National Statistics Agency (ZimStat), the monthly inflation rate for September was 17,72, meaning prices, as measured by All Items Consumer Price Index (CPI) increased by an average of 17,72 percent.

The monthly rate is given by percentage change in the index of the relevant month of the current year compared with the prior month; however, a decline in the rate does not signify a drop in prices, but slower price rise.

Pricing in Zimbabwe, which contains elements of profiteering, has largely remained under pressure of unstable foreign currency exchange rates (amid an acute US dollar crunch) and continuous growth in broad money supply.

Pricing models in Zimbabwe now often track the US dollar exchange rate dynamics, as the Zimbabwe dollar continues to weaken against the greenback, given the strong dependency on imports.

Amid unrelenting pressures on the domestic currency due to an acute forex supply-demand mismatch, the Zimbabwe dollar exchange rate has fallen from about 11 to 1 against the US dollar in August to about 15 to 1 in September.

As the Zimbabwe dollar lost ground against major currencies, especially the greenback annual inflation vaulted from 5,39 percent in September last year to 175,5 percent by June 2019.

Treasury has since suspended publication of annual inflation until February 2020, to ensure like for like comparison of trends, after the country in June adopted exclusive use of the domestic currency.

Minister Mthuli Ncube projected in his 2020 pre-budget statement last week that Zimbabwe's monthly inflation rate will fall to 10 percent by December on account of ongoing fiscal and monetary policy reforms.

Under the short-term blueprint, the Treasury chief has worked to increase tax revenue (including 2 percent tax), instituted fiscal consolidation (to cut budget deficit), and discontinued the use of the central bank overdraft window and Treasury Bills to fund public expenditure.

The minister has also, through the Reserve Bank of Zimbabwe, tightened monetary policy and restored local currency to give the central bank full leverage of monetary policy tools for inflation targeting and keep money supply growth on a leash, among other objectives.

Minister Ncube, however, said the 2020 National Budget will entail a coterie of measures to preserve the value of Zimbabwe's mono-currency after the unit took some extensive battering from foreign currency induced volatility following its reintroduction last June.

Planned interventions to protect the value of the Zimbabwe dollar will include a tighter monetary policy that anchors inflation and keeping under a leash money supply growth; believed to be the main driver of the domestic currency's exchange rate instability, around a lowly 10 percent per annum.

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