HomeBusiness DigestInflation remains unchanged at 4,3%

Inflation remains unchanged at 4,3%

The economy, which is expected to grow lower than the projected rate, is currently reeling under a serious liquidity challenge and this is ultimately impacting on the demand for goods and services.

Latest figures from Zimstat show that the rate of inflation, which is measured by changes in the consumer price index (CPI), increased by 0,49% on a monthly basis.

So have the authorities managed to curb inflation, given that it is trending downwards from last year’s peak of 4,9% in December? Or are we experiencing the ‘’january effect’’, where prices generally trend downwards in January as retailers readjust their prices to suit reduced consumer demand?

It is now customary for retailers to increase prices in November and December to capture increased festive season spending.

However, an analysis of the key components of the CPI for the first two months of the year indicates that the devil is still awake and authorities have a lot to be wary of.

Food and non-alcoholic beverages and non-food inflation both went up by 5,01 % and 4,01% respectively on a year-on-year basis. This was on the back of the introduced surtax on finished goods and remodelling of duty on imported basic commodities which took effect on  January 1 2012.

“In order to re-direct resources from the consumption of less essential goods towards production, I propose to introduce a surtax of 25% on selected imported finished products, with effect from 1 January 2012,” said Finance minister Tendai Biti in his 2012 budget pronouncement.

The full impact of the measures announced by Biti is now trickling down to the final consumer and thus the food index rose sharply on an annual basis to February 2012.

Biti said the major reason for proposing such measures were due to the influx of imported goods, which posed immense competition to local producers, thereby denying the industry adequate latitude to rebuild and improve standards to world class levels.

Despite the reported increase in capacity utilisation to around 57% by year end, the subsequent increase in final prices of imported finished goods and commodities have offset the gains of imposing such measures, with importers simply passing on the increased tariff charges to the final consumer.

“It is clear that some unscrupulous traders took advantage of the policy measure to increase prices,” admitted Biti.

When duty on basic commodities was first introduced during the Mid-Year Budget Review in 2011, the food inflation index spiked by 0,5% in the month of September 2011 alone, as most retailers took advantage of the situation and increased prices, even for locally-produced goods.

It is generally accepted that most  traders were now accustomed to speculative tendencies and would always seek to unfairly benefit from any policy announcements with regards to duty on imports on the unsuspecting consumers.

Non-food inflation also went up by 4,01% on an annual basis due to the continued hiking of the housing, water, electricity, gas and other fuels index, which spiked by 3,81% during the month of February 2012.

Rates were the major drivers of the index component, spiking by 9,9% on a month-on-month basis. Council rates have continued to rise, with property owners passing on the burden to tenants.

As has become tradition, property owners also tend to increase rentals at the beginning of the year when most lease agreements are due for review. The high dependency on rental income is necessitating the increases as property owners seek to increase their disposable income and also realise returns on their huge investments.

With the stock market currently underperforming and listed companies operating in a constrained environment, returns on holding stocks are limited and   less companies are paying a dividend. Property has become a preferred asset class since rental income has become a substitute for dividends or interest.

The recent price increases in fuel will have a contagion effect on all sectors of the economy going forward. Petrol prices have since gone up to above US$1,42 per litre for  unleaded and increases are also evident in the supposedly cheaper blended type which include the locally blended E10 which is selling at more than US$1,36 per litre.

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