RAMPANT inflation which the Reserve Bank this week said clocked 2,2 million% is set to hasten towards the 100 million% mark by year-end following governmentâ€™s launch of the “Bacossi to the People” project this week, economists said.
The Reserve Bank has splashed millions of United States dollars in its latest quasi-fiscal undertaking, the National Basic Commodities Supply Enhancement Programme in which rural and urban dwellers will receive groceries at heavily subsidised prices.
A food hamper containing 12 products has been priced at $110 billion or US$4 at the interbank rate.
Meanwhile, sources told this paper that some RBZ officials were now jostling to be deployed to rural areas as “shopkeepers” at the populist “peopleâ€™s shops” where they were promised a windfall of $20 trillion in allowances for five working days. Analysts say government, by providing cheap groceries, was actually creating a much bigger problem for the economy which has been in free-fall since 2000.
They said government had no capacity to import groceries for the whole nation using foreign currency â€” which is in short supply due to limited capacity utilisation in the farming and manufacturing sectors. They said the currency to purchase the groceries could only have been purchased on the parallel market using money hot off the printing press.
Bulawayo-based economic analyst Eric Bloch said the government scheme would have limited impact in taming runaway inflation at national level.
“It is going to reduce inflation for the fortunate beneficiaries, although it will have limited effect at national level,” said Bloch.
“The programme will necessitate printing of money and a greater government debt. It will have some marginal benefits, not major opportunities â€” limited employment opportunities could be created.”
ZB Bank group economist Best Doroh yesterday said the “deep rooted” causes of hyperinflation could only be addressed by resuscitating local industry.
“I donâ€™t think it will have material impact at national level because its sustenance is a major challenge since the bulk of the products are imported,” said Doroh.
“The causes of our inflation are deep-rooted. This programme can only be beneficial if we address the supply side by boosting capacity utilisation of industry.”
Critics have also pointed out that the low price of the hamper was an incentive for recipients to resell the goods instead of consuming them.
“The market price of that hamper is upwards of $2 trillion,” said an executive with a manufacturing firm.
“Those with access to the cheap groceries will be tempted to sell products like toothpaste, sanitary pads and washing powder to raise money to buy mealie-meal or kapenta which are not included in the hamper. Government is promoting trading on the black market here.”
He added: “Looking at the rate at which prices have been rising since the beginning of the year, an inflation rate of 100 million% is very possible by year-end unless there is serious capital injection to revive industry. This stop-gap measure is not the answer.”
There is also confusion at the National Incomes and Pricing Commission (NIPC) over the scheme as this is bound to distort the setting of prices for locally-produced goods. Yesterday NIPC chairman Godwills Masimirembwa, said the commission was contemplating how to peg prices of basic goods following the establishment of the scheme.
“We are still working on that area at the moment,” Masimirembwa said. “Please get back to me next week.”
This development, analysts warned, could foment another war of attrition between the central bank and the commission over the pricing of goods and services.
Central Bank governor Gideon Gono has in the past come out opposing the pegging of prices of basic goods and services. The latest plan â€” in which he is the central figure â€” is a contradiction of his past position. Earlier this year the Reserve Bank relaxed controls in the foreign currency system resulting in the NIPC losing control over the soaring prices of basic goods and services.
Speaking at the launch where he also announced the official inflation figure since January, Gono attacked business for effecting price increases which have pushed inflation to 2,2 million % from 100 580,2%. Independent economists say the figure could now be over 9 000 000 %.
The Reserve Bank chief cited the price of a 750ml bottle of cooking oil saying retailers were using the “most ridiculous of inflation predictions” to price their commodities. He said the cooking oil should be priced at $12 billion, which was equivalent to R13 on the inter-bank rate on Wednesday. The product was being sold for over $200 billion on the parallel market in urban centres.
“The level of extortion actually frightens even the devil himself,” Gono said. “The extent to which prices are going up everyday defies logic.
“If it means that the industry has to go down for the sake that they do not want to reduce their prices to reasonable levels, we will not stop looking for partners who will bring these goods at affordable prices so that we confront market indiscipline with market instruments,” he said.
Despite facing a host of operational impediments, Gono challenged industry to be “humane” in the face of these challenges.
Meanwhile contrary to press reports that food-manufacturing group National Foods (Natfoods) had produced some of the basic commodities, sources said the company had only “repackaged” the predominantly imported goods. Industry pressure groups indicate that industry is operating at 15% of capacity owing to lack of sufficient foreign currency, a command-pricing regime and frequent power outages.
This week this paper saw armed soldiers manning Natfoodâ€™s Sterling Road warehouse where stocks of processed imported products are reportedly stocked for re-packaging.
By Bernard Mpofu