HomeBusiness DigestGeneral price levels softening

Comment: Constitution-making now a tangled web

This means that prices, as measured by the CPI, increased by an average of four percentage points between March last year and this year.  The month-on-month inflation was at 0,43 %, shedding 0,06 percentage points on the February rate of 0,49%. Prices of basic goods and services have generally remained stable owing to the lack of room by retailers to raise prices because of subdued disposable incomes. This is under the backdrop of an illiquid economy.

Landlords have also not been given room to increase rentals while transport costs have generally remained unchanged. However, since the reversal of the surtax on most household products, there has not been a commensurate reduction in inflation pass-through on the part of retailers. The decline in inflation has also been attributed to the weakness of the rand against the US dollar, which is currently in use in the country, and this is captured through lower prices of imports. South Africa is Zimbabwe’s largest source market for food and other manufactured imports.

The year-on-year food and non-alcoholic beverages index, which is prone to transitory shocks, stood at 5,2% whilst non-food inflation was at 3,44% in the period under review.  The graph shows relatively stable inflation patterns pointing to a generally stable inflation outlook for 2012.

However analysts have questioned the reliability of the figures as consumer patterns vary widely across the board. Independent inflation trackers put the rate at around 8%.  The monthly CPI reveals the inflation rate in a given period, based on the cost of a “market basket” of goods and services, from food and transport to clothing and housing.

However, it can overstate or understate the impact of inflation on an individual family whose market basket may differ from the government’s. That family may have significantly more or fewer health expenses or alcoholic beverages expenses, for example. Many economists believe that the CPI’s basket broadly understates the real inflation rate by as much as 2,5%.

The major fault of the CPI is that the allocation of weights used to come up with the CPI generally show a bias against new products and services. Analysts argue that communications expenses now make up a significant percentage in the general consumer basket but the allotted weight is still low on the CPI.

In terms of weights used in calculating the index, food and non-alcoholic beverages make up 31,9, alcoholic beverages and tobacco four, clothing and footwear 5,7, housing, water electricity, gas and other fuels 16,2, furniture household equipment 15,1, health 1,3, transport 9,8 communications at 1, recreation and culture at 5,7%, education 2,9, restaurants and hotels at 1,5 and miscellaneous items at 3,9.

The CPI for March stood at 101,37 compared to 100,94 in February and 97,49 in March last year.

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