Zim’s declining inflation causes headaches

Zimbabwe’s sharply declining inflation rate against a rapidly collapsing productive base is causing headaches for the country’s fiscal authorities.

Report by Clive Mphambela

The country is failing to enjoy the benefits of low inflation mainly due to the country’s growing dependence on imports.

Presenting the state of the economy address for March 2013, Finance minister Tendai Biti said Zimbabwe’s continuously declining inflation rate was largely as a result of the country’s dependence on imports, particularly from South Africa.

Zimbabwe depends on its southern neighbour, particularly on food stuffs.

Economist, Brains Muchemwa  told businessdigest that the rapidly depreciating rand, which has lost some 14% of its value against the US dollar since October last year was playing a huge part in Zimbabwe’s inflation trend.

“The depreciating weakened US/Rand exchange rate has filtered through to dampen inflationary pressures on the food items considering that over 90% of imported foodstuff come from South Africa,” Muchemwa said.

He said the inflation trend on the food items would, until such a time that Zimbabwe’s manufacturers of foodstuffs come out of the doldrums, continue to be closely correlated with the US/Rand exchange rate movements and as such the overall inflation management framework will remain exogenous.

“Equally important is the very weak domestic demand emanating from worsening unemployment levels and high levels of household indebtedness that have left little disposable incomes on the hands of consumers to effect strong demand,” Muchemwa said.

According to the  latest figures from ZimStat, annual inflation as measured by the Consumer Price Index (CPI) shed 0,22 percentage points to 2,76% from 2,98% in February 2013 as the effects of the downward pressures on the South African Rand continue to work through the economy through imports.

The CPI for March stood at 101,2 points compared to 101,0 in February 2013 and 98,5 in March 2012.

Biti said the domestic liquidity pressure had also dampened domestic demand, leading to relatively slower rates of domestic inflation.
According to statistics from ZimStat, the month-on-month inflation stood at 0,21% , 0,74 percentage points lower than February rate of 0,95%.

The year-on-year Food and Non-Alcoholic beverages inflation stood at 4,18% whilst the non-food inflation rate was 2,04%.

Tendai Biti lamented the country’s ballooning trade deficit but said given the country’s constrained domestic manufacturing industry it was necessary to import food items.