Inflation forecasts losing value

Shakeman Mugari

DESPITE Reserve Bank of Zimbabwe governor Gideon Gono’s bravado on inflation, analysts say he is widely expected to revise his year-end forecast from 50-80% to about 300% by year-end.
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Gono had said the inflation rate would fall to between 50-80% but analysts say he will adjust the figure when he announces his monetary policy review later this month.


Gono this week tried to put on a brave face in the light of a massive surge in year-on-year inflation for September from 265,1% to 359,8%.


Month-on-month inflation galloped 25 percentage points to 33,3% from 8,3% in August.


Despite clear indications that inflation is rising sharply, Gono said the central bank had “sufficient battery of policy instruments to deal with the resurgence. And rest assured, the trend as well as the final outcome will be under control,” Gono said.


Analysts say despite the bluster, it is clear that Gono is losing the war against inflation. He has been climbing down from his initial forecasts due to deteriorating economic fundamentals that have triggered massive price increases. So far Gono has revised the inflation figure thrice since January last year.


Annual inflation ended last year at 132,7% against a revised target of 150%-150%, which Gono had set for himself.


In his monetary policy in October the same year, the governor had boldly declared that inflation was going to slow down to between 30-50% by December this year.


Sensing that he was conquering, in January this year Gono then revised the figure again saying inflation would close the year at 20-35%.


On May 19, Gono was forced to revise the figures saying it would end the year at between 50-80% up from his January forecast of 20-35%. He blamed drought for his failure to meet the target.


Sources say Gono will later this month modify his forecast to about 300% in the face of mounting economic problems.


A recent International Monetary Fund (IMF) report forecast Zimbabwe’s inflation to end the year at 320%. The damning report by the fund accused the central bank of stroking the figures by printing more money.


It noted that government’s expenditure, the Reserve Bank’s quasi-fiscal activities and Operation Murambatsvina were the major contributors to runaway inflation.


Analysts say this fiddling with economic data destroys the whole purpose of forecasts and casts doubt on the central bank’s reputation.


Observers say the latest climbdown is a realisation by Gono that the economic fundamentals do not favour his over-optimistic inflation target.

Earlier, On-line news reports had indicated that he would change his target to 265%. However, sources in the central bank say the figure will be around 300%.


The governor this week even blamed land invasions for fuelling inflation. He did not say how his “battery of policy instruments” would be effective to stop further land invasions.


He said inflation was being driven by fuel price adjustments, parallel market activities and wage and salary adjustments that are not matched by productivity. He said power tariff increases, school fees, rent and rate hikes had also pushed up inflation.


Analysts note that Gono has so far failed to deal with the foreign currency parallel market which is fuelled by lack of the same in the formal sector. They say Gono does not have control over fuel prices that have been increasing internationally.


Among the reasons accelerating inflation, Gono left out government expenditure, the RBZ’s quasi-fiscal activities including doling out billions to parastatals and local authorities.


There is scepticism in the market as to whether the new target of 300% by December is achievable.


They say it is highly unlikely that government would rein in its spending, adding that the state is most likely to spend more to fund its populist policies.


“The 50-80% forecast cannot be achieved. I think it will end the year above 350%,” economic commentator, Eric Bloch, said.


“The inflation will not be reduced unless we revive agriculture, cut government expenditure, increase production and fight corruption,” Bloch said.

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