RESERVE Bank of Zimbabwe (RBZ) says the national economy is going through a period of disinflation, dismissing the common notion that it was now gripped by deflation.
RBZ governor John Mangudya in his monetary policy statement on Wednesday said the reduction in the rate of inflation in the economy was a necessary process towards correcting the high prices obtaining in the country.
The Investopedia defines deflation as the general decline in prices often caused by a reduction in the supply of money or credit. It can be caused also by a decrease in government, personal or investment spending.
Disinflation means a slowdown in the rate of increase of the general price level of goods and services. It is not considered to be problematic because prices do not actually drop and disinflation does not usually signal the onset of a slowing economy.
“Instances of disinflation are not uncommon and are viewed as normal to correct some of the macroeconomic fundamentals due to market failure. Disinflation is different from a deflation phenomenon which is caused by businesses lowering prices in a desperate attempt to get consumers to buy their products,” Mangudya said.
He said the disinflation in Zimbabwe is therefore a good development as it increases the consumers’ purchasing power.
The central bank chief said in Zimbabwe businesses lower prices not because of subdued demand but due to imports coming into the country cheaper as a result of the weakening of the major trading partners’ currencies against the United States dollar.