HomeBusiness DigestInflation decline - no need for scepticism

Inflation decline – no need for scepticism

By Epifania Gorowa

INFLATION has continued to tumble, with the year-on-year figure for October registering 209%, some 42,5 percentage points down from September’s 251,5%.

face=”Verdana, Arial, Helvetica, sans-serif”>As the figure decelerates, it appears there is hope that the central bank’s adjusted forecasts of between 150 and 160% from the previously announced 200% may be attained in December.

However, month-on-month inflation has climbed 10,1% owing to increases in meat, vegetables and posts and telecommunications prices.

It is clear that there are misconceptions by the general public who remain baffled as to why inflation is said to be declining when consumer goods are escalating. The misconceptions have led to the Central Statistical Office being accused of conjuring up inflation figures.

The Consumer Price Index (CPI) is used in calculating y-o-y and m-o-m inflation figures, which entails reviewing the percentage change in the average price of a basket of goods within that current month or year as compared to the previous year.

The rate of increase in last month’s index (10,1%) is lower than the rate that was witnessed at the comparable period last year (25,3%). Debate has arisen as to whether the “basket of goods” is sufficient to come up with accurate information, or some items should not even be included.

To a large extent the country does not possess all the intricate information requirements that would aid in forecasting inflation, for example the application of advanced statistical and mathematical methods in search of economic solutions (econometrics). There is need, therefore, for the Consumer Council of Zimbabwe to fully educate the public on such issues.

Paraphrasing from the Third Quarter Monetary Review Statement regarding the war against the “venomous viper” — inflation, progress can be attributed to increased capacity utilisation, tight money-market conditions and fiscal discipline.

There certainly has been decreases in the money-supply growth as portrayed by the figures released (January — 490,9% and August —320,6%) working hand-in-hand with a tight monetary policy.

However, it’s generally believed that the effects of the policy on inflation can be felt more within the long-run rather than in the short-term.

As for fiscal discipline, this has come in the form of increased efforts in streamlining expenditure in productive rather than wasteful activities and raising capacity utilisation.

On the other hand, this week has been the lull before the announcement of the 2004 Budget which takes the role of a compass in giving direction.

Obviously, there are various expectations from the sectors within the economy as to whether their pleas have been heard. No doubt large allocations will go to capital developments seeing that our present infrastructure still leaves room for great improvements and to the agricultural sector.

Widening of the tax-band will be applauded by many as it will ease (to a certain extent) the marauding effects of economic hardships. Recalling the last budget, the upper limit of the non-taxable band was $2,4 million per annum whilst currently it’s pegged at $9 million per annum.

Approximately $990 billion was allocated to capital developments amid complaints that it was not enough to carry out all the upgrading and expansion activities like construction of the Harare-Bulawayo dual carriageway which to date has only been completed up to Norton.

The question is, do the allocated amounts ever satisfy any sector?

The last budget summed up to roughly $8,74 trillion, and many are wondering what it will sum up to this time.

I agree totally with those who proclaim that extra attention should be paid to transport, especially within the urban areas.

* Any opinions expressed reflect the judgement of the author, and do not necessarily reflect the opinion of Sagit Financial Holdings or any of its subsidiaries and affiliates.

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