Inflation decreases

INFLATION, as measured by the change in the Consumer Price Index (CPI) came in 0,01% lower than the April figure at 4,02% year on year. Month-on-month inflation was 0,07%, 12 bps lower than April’s 0,19%. Annual inflation in Zimbabwe as measured by ZimStats has trended downwards in 2012 from the December 2011 closing figure of 4,9% to the current 4,02%. The downward trend in inflation can be explained by two major exogenous factors  — crude oil prices and  the South African rand exchange rate. The current weak global economy has resulted in a drop in crude oil prices which had exerted a lot of inflationary pressures on many oil importing economies at the beginning of the year.
The recent drop in oil prices has led to a decline in inflationary pressures in most economies and is part of the reason why inflation has only moved sideways locally.
Zimbabwe currently imports most of its basic commodities from South Africa and these imports constitute a great part of the 31,93% weighted food and non-alcoholic beverage segment of the CPI calculation. Because the imports are rand-based, the cost has been on a decline due to the weakening of the rand, leading to a sideways if not downward movement in the cost of most imported food and non-alcoholic beverages.
The decline in inflation was guarded by the huge increase in the 16,23% weighted housing, water, electricity, gas, and other fuels component which went up by 39 basis points month on month, while the annual increase came in at 13,94% and clothing and footwear costs  went up by 20 bps month-on-month.
The year-on-year food and non alcoholic beverages stood at 4,61% whilst non-food inflation stood at 3,75%.
The month on month inflation rate in May 2012 was 0,07%, shedding 0,12 percentage points on the April rate of 0,19%.
The month-on-month food and non alcoholic beverages inflation stood at -0.25% in May shedding 0.39 percentage points on the April rate of 0.14%.
The month-on-month non-food inflation was unchanged at 0,21%.
ZimStats is currently doing a Poverty, Income, Consumption, Expenditure Survey (PICES). The objective of the survey is to provide data on income  distribution of the population; the consumption level of the population; private consumption; consumer Price Index (CPI) weights; living conditions of the population; production account of agriculture  (Communal Lands, Large Scale commercial farms; small Scale commercial farms; resettlement areas, A1  and A2 farms; and poverty. After the survey, the weights of the CPI will change in line with the international requirement of five years. At present 2008 is the base year for the index.
Elsewhere on the continent, the Ghana Statistical Service (GSS), will rebase its CPI next year.
Economists argue that the existing methodology is outdated and that it does not fully represent current expenditure patterns. They also argue that some of the components in the basket are obsolete.
Housing, water electricity gas and other fuels take up a greater proportion of the average income, much more than food. However, food and non-alcoholic beverages, have a greater weight of 31,9 against 16,2 for housing water electricity gas and other fuels.
The changes to the weightings will make the basket accommodate current happenings.
The present basket is made up of 68 commodities under 12 components. New weights will also be assigned to the commodities to reflect their relative importance in current household consumption. It’s most likely that transport and communication costs will see higher weightings as they now make up a bigger share of household spending than previously.
The CPI for the month stood at 101.63 compared to 101.56 in April and 97.71 in May last year.
With the current CPI determination method in place and the Rand continuing to weaken, inflation is likely to remain subdued and the weak global economic growth is likely to ensure that oil prices remain depressed in the short to medium term resulting in weaker inflationary pressures in most oil importing countries like Zimbabwe.

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