Speculation Fuels Inflation

HIDING inflation figures has forced speculators to run riot with producers and retailers increasing prices daily, a move that will further intensify inflationary pressures.

 

Economic analysts this week said blocking the figures will not help bring down inflation but will instead force it to rise because economic players will not have a guiding figure to effect new prices.

This, they say, will lead to rampant speculative pricing based on an assumed inflation figure “well above the official one”.

What is however true is that no one really knows what Zimbabwe’s rate of inflation is.

It should be enough to just say “prices are rising astronomically,” rather than for banks and research institutes to engage in the charade of trying to put a number to it.

The situation is simply too fluid to be able to do that accurately, as the widely varying figures of these “reputable” finance houses and organisation show.
The effect of speculative tendency in Zimbabwe is already being felt on the foreign currency front where the US dollar’s depreciation against major trading currencies is also being used to estimate inflation.
The secrecy on the inflation figures has only led to more suffering for the common man and worsen the economic crisis, analysts say. The Central Statistical Office last week announced that the June inflation was 11,2 million percent.
Kingdom bank group economist Witness Chinyama, said the major problem with not releasing inflation figures was that it hampered developmental plans for companies while at the same time fuelling inflation even further because of speculation.

“Inflation figures are essential for companies planning purposes especially in a hyper inflationary environment like we are living in now,” he said

“Companies need to track their performances based on these inflation figures. Without these figures, companies won’t know where they are coming from and where they are going,” Chinyama said.

A fortnight ago, Kingdom Bank reported that inflation had reached 20 million percent.

Producers said the figure could be higher and would not stop increasing their prices simply because they do not have inflation figures. Market will continue to flourish on the back of an unrealistic exchange rate which is way behind the parallel market.

Prices of fuels, spare parts and other imports show clearly that the pricing models are based on the parallel market rates.
Retailers and manufacturers have been responding to each announcement of inflation figures by increasing the prices of goods and services.

Zimbabwe’s economy and quality of life have been in rapid, uninterrupted decline.

The irony has been that while companies are happy to base their salary increments on known inflation figures to cut their costs, they are more than willing to use speculative figures to increase their prices.

Independent economist John Robertson said the delay in releasing inflation had led to confusion in the market.

“People will not be able to get an idea of what is happening to the exchange rate leading to prices being pegged using the prevailing parallel market rate,” Robertson said.

“There are so many figures being thrown around. The impact (of speculation) is disastrous on smaller companies with less cushion and no external operations,” he said.

Robertson who believes that the June inflation rate was about 30 million percent said the higher estimates were likely to be more accurate.

In a country where about half the population is reportedly threatened with starvation, the increase in inflation would be felt particularly hard as the dollar continues to slide.
A local banker who refused to be named said the government has been conservative in portraying the real situation on the ground.

“How can one explain the fact that we went for six months without a official inflation figure. This has created a lot of distortions in the country in terms of pricing and has had an impact on the exchange rate. We have the Old Mutual Implied Rate, the interbank rate, the parallel market rate, the hard boiled index, the NGO and embassy rate, and the Mazowe Orange Crush rate which are all reactions to the inflation figures,” said the banker.

The bank official said there were multiple prices for goods and services for almost every commodity and service.

“There is an official and unofficial price. This is because when the Central Statistical Office releases a figure, it is based on the official prices while banks and research institutes use prices being obtained on the market,” the official said

What is happening in the country is no laughing matter.

For untold numbers of Zimbabweans, toilet paper and bread, margarine, meat, even the once ubiquitous morning cup of tea have become unimaginable luxuries.

All are casualties of the hyperinflation that is “officially” roaring towards 12 million percent.

By Jeslyn Dendere

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