Negotiations bar ZABG from meeting RBZ capital requirements

The annual inflation rate stayed in check from the beginning of the year where it remained unchanged at 4,3% for the month of January and February and slowed down to 3,98% in March, a development that painted a rosy picture in the economy.

But economists have raised doubts on the inflation numbers, arguing  conversion factors adopted by Zimbabwe National Statistics Agency (Zimstat) in December 2008 when the base index was restated to 100 were historical and were not based on current consumer expenditure patterns.

“We need to know what conversion factors Zimstat used to get the weightings on the components of the CPI since when calculating the figures you need to know how consumers have adjusted to changes in circumstances,” said an economist with a financial institution.

Independent economists have always argued that the reported CPI figures are not fully reflective of the real situation on ground. Yet the published figures show that on a month-on-month comparison, the inflation rate declined to 0,19% in April from 0,43% in March, indicating a slowdown in price increases during  the month.

“The weighting of the CPI model seems to be a bit off the mark and therefore needs to be re-calibrated to reflect the exact spending habits on consumer goods and services so that the inflation figures reflect the exact increases in the appropriate consumer consumption baskets,” said Brains Muchemwa an economic analyst.

A consumer expenditure survey is usually carried out when the inflation index is restated so that the weightings on the CPI components are adjusted to give an accurate measure of the real changes in general price levels.

At the moment there are indications of a discrepancy on the weightings of the CPI components which are not reflective of the major drivers of inflation in the current economic scenario.

For instance CPI components like health with a weighting of 1,3%, communication – 1% and education – 2,9%  are surely underweight given the huge demand for such services in the economy.

The telecommunications sector definitely has grown to be a major component of CPI given that the tele-density ratio has increased to 68% in 2011 since the advent of the mobile phones.

The education component is also underweight given that almost every household pays school fees and the recent increases in school fees at the beginning of the full term are significant and should be reflected in the CPI figures.

The furniture, household equipment and maintenance’sweighting of 15,1% seems to be also out of line given that the demand of durable consumer goods is currently low because of the low disposable incomes. Less people can afford to buy furniture in this current economic scenario and placing a huge weighting distorts the CPI statistics.

Muchemwa said: “A new survey on consumer expenditure habits needs to be conducted so that the weighting of the CPI components gives a near correct picture of consumer behavior. Such components as education (2,9%), communication (1%)and household furniture and equipment (15,1%) seem to be having inappropriate weighting.”

“But it is the results of the comprehensive survey that will be able to assign the right weights,” cemented Muchemwa.

But government through the ministry of finance has indicated an intention to conduct an expenditure survey but to date nothing has been concluded, a development that will see inaccurate inflation figures being published.

There are also sections of the market who also feel the figures are being tempered with by government to create a rosy picture of the economy to gain political mileage and also to counter speculative tendencies which fuelled inflation in the hyperinflation era.

Zimstat is a government run institution and statistical offices vary in their technical sophistication and ability to resist political pressure. Curbing inflation to single digits level is one of the top priorities for the inclusive government and the influence of government in making sure the figures remain within stated projections cannot be scuffed off.

In the February edition of The Economist in the article Don’tlie to me, Argentina which sought to explain why Argentina’s figures were excluded from their published table of statistics, concerns of government tempering with the figures were raised.

The Economist reported that the Argentine government debased INDEC one of Latin America’s best statistical offices so as to avoid bad headlines and independent-minded staff were replaced by self-described supporters of President Cristina Fernández de Kirchner.

“In an extraordinary abuse of power by a democratic government, independent economists have been forced to stop publishing their own estimates of inflation by fines and threats of prosecution. Misreported prices have cheated holders of inflation-linked bonds out of billions of dollars,” read The Economist.

“From this week (12 February), we have decided to drop INDEC’s figures entirely. We are tired of being an unwilling party to what appears to be a deliberate attempt to deceive voters and swindle investors,” cemented The Economist.

Finance minister Tendai Biti indicated that inflation is projected to end the year at around 4% but there are a number of factors which can turnaround the estimates with inflation ending heading northwards.

Firming crude oil prices have resulted in prices of fuel going up by 50% since beginning of 2010 and this has a cascading effect to all components of the CPI since transportation is a common factor.


Other factors include possible civil servants wage increases which can stimulate artficail demand and imposition of varied duties on imported goods is usually countered by general price increases by retailers.