Inflation Creeps to one Percent

ZIMBABWE’S monthly consumer inflation rose to 1% in July from 0,6% in June, the Central Statistical Office (CSO) said on Wednesday.


The CSO attributed the increase in monthly inflation to rising costs of fuel, lubricants and transport.
“The month-on-month inflation rate in July was 1,0%, gaining 0,4 percentage points on the June rate of 0,6,” the CSO said in a statement.
Zimbabwe’s month-on-month inflation returned to single digits after government abandoned the local currency in January, following years of hyperinflation estimated to have peaked above 10 billon % in December last year.
Month-on-month inflation for April was
-1,15% compared to -3% in March.
Zimbabwe is now basing its inflation data on US dollar prices.
The CSO has however not been calculating year-on-year inflation. Zimbabwe’s last official year-on-year inflation was 231 million% in July last year.
Analysts said inflation could rise in the short term as government was facing increasing pressure from state employees demanding high salaries.
Medical doctors are currently on strike, while teachers have threatened to embark on industrial action when schools open for the third term in September in protest against poor salaries and working conditions.
According to the Consumer Council of Zimbabwe (CCZ), the family basket currently stands at US$501,36 — beyond the reach of many families.
“The month-on-month food and non-alcoholic beverages inflation stood at 0,23% in July, gaining 1,49 percentage points on the June rate of -1,26%,” the CSO said. “The month-on-month non-food inflation stood at 1,33 percent shedding 0,12 percentage points on the June rate of 1,45%.”
During the month under review, the Consumer Price Index was 91,3% compared to 90,4% in June.
A major challenge that the country is faced with is the low levels of revenue inflows that is making it impossible to meet government requirements raising fears of imported inflation.
Over the past years, government was over-spending on the strength that the Reserve Bank would print money to meet its budgetary demands.
President Robert Mugabe is on record saying the central bank should run the mint if government is broke.
Zimbabwe now calculates inflation in US dollars after it abandoned its own currency that had become worthless after nearly a decade of acute recession and hyperinflation.
Not only had the printing of money without production to support it increased inflation, money supply, and lowering the country’s creditworthiness, it also resulted in huge budget deficits over the past five years.
With the introduction of multiple currencies in February, questions are being asked if government would be able to live within its means this time around.
Economist Brains Muchemwa said given the prevailing modus operandi (dollarisation of the economy), government will be “forced to operate within budgetary allocations because of lack of control over money supply”.
Corporate lawyer and newspaper columnist Alex Magaisa said history has shown that government has generally failed to live within its means and Finance minister Tendai Biti’s Herculean task is to inculcate discipline in line ministries.
“The trouble is there is so much that needs to be done and all this requires resources but there is little by way of resources to do it,” Magaisa said. “At the moment as a country we are living like hunter-gatherers, living from hand to mouth and whilst this might permit survival, it does not provide the facility for development at all.”
Magaisa said too much of the government revenue was being expended on “survival needs” as opposed to “growth needs” — for example, 60% of government’s budget has been spent on the allowances for civil servants and 18% on ministries’ operation expenses.
Economist Eric Bloch said not only was economic recovery critically dependent upon government living within its means, but also government had no alternative, “for it
neither has any borrowing powers in the current environment, nor the ability to print money”.
Bloch said government must therefore maximise its means, without resorting to overly burdensome taxation (which would deter investment and undermine economic recovery).
Meanwhile, analysts said the reintroduction of the Zimbabwean dollar should be pursued with maximum caution as it has economic implications.
Central bank governor Gideon Gono on Monday told a parliamentary portfolio committee that reintroduction of the local unit, which has been declared dead, was a possibility. He said the local currency should be reintroduced and be pegged against gold and under these circumstances, a certificate would be issued to the Reserve Bank on the amount of the local currency to be printed based on the amount of gold available.
Analysts said while this was a possibility, it would be very difficult to implement especially with the memory of how the local unit was eroded by inflation only a few months ago.

 

Paul Nyakazeya

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