Number 1 enemy not yet counted out

By Admire Mavolwane

THE stock market seems to be showing the same resilience as is being exhibited by the “country’s number one enemy” – the high inflation rate.



Arial, Helvetica, sans-serif”>The official year-on-year figure for June, shows a scary jump of 19,9 percentage points to 164,3% from 144,4% in May. The surge in the annual rate was driven by the month-on-month rate of 18,1%, a record since the concerted fight against inflation rate scourge started in December 2003.

While many thought of the January rate of 14,1% as being a result of the non-food seasonal factors that the CSO referred to, it was with hindsight clearly much more than that and June’s rate jump brings back painful memories of the 2002-03 extreme hyperinflationary cycle.


The adoption of the new classification – termed Individual Consumption by Purpose – has resulted in the increase in sub-groups from 34 to 68. A 2001 base has replaced the former 1995 one. These changes appear to have occurred smoothly with minimal distortion to the figures. The 2001 base, though resulting in a restatement of the figures, still indicates a discernible trend. Kudos to the CSO.


The graph shows that the ‘enemy’ while down was not out during the past year, always rising before the referee could count to 10. We will probably live to fight yet another battle but at the moment, the odds look firmly stacked against the attainment of the official year-end targets.


The stock market has, on the other hand, not only recouped all losses suffered after the May 19 monetary policy review but has even gone a step further. Prior to June 15, that is before the current bull run started, shares looked to be really “down and out” and investors seemed to have been cured of their “irrational exuberance” malaise. As of the close of business this Wednesday, exactly two months after the May policy statement, the industrial index had reached a new all time high of 3 431 501,22 points.

Since the beginning of June the stock market has risen 20,1% and is all but set to match the July month-month inflation figure which is widely anticipated to come out in the 20%-25% range.


While it is blissful on the bourse, the country’s back seem now to be up against the wall and could be slowly grinding to a halt. The inevitable hard landing, which we have been fighting tooth and tail to prevent, looks to be now in the offing. Air Zimbabwe is reported to have cancelled some of its domestic and regional flights because of lack of fuel. One wonders who else has had to suspend operations because of a lack of fuel.


Another dimension which many in economic circles view as a watershed event is the impending International Monetary Fund decision, which is expected within the next two weeks. Are we going to score yet another “first”, as the state media would call it and set a precedent by being asked to compulsorily withdraw our membership of the Fund? One hopes not. However, it is business as usual for stock market punters who have, to all intents and purposes turned the proverbial blind eye to the writing on the wall.


Lastly, yesterday the governor delivered probably his briefest monetary policy statement since moving into the corner office at 80 Samora Machel Avenue. The official annual inflation rate target remains at 80% by December, but in the meantime it is expected to accelerate until September before tapering off sharply.


Other initiatives announced included the movement in the exporter’s exchange rate to $17 500 per US dollar, the abolition of the 5% concessionary fund for exporters, the upward reviews of the cotton and gold support prices as well as new capital requirements for banking institutions effective September 30 next year. We will provide a more extensive analysis on the policy next week.

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