Zim deflation now slowing down further

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ZIMBABWE’S deflationary pressure is seen easing as the macro-economic situation deteriorates with business expected to suffer depressed turnover and profits, analysts say.

Taurai Mangudhla

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According to the Zimbabwe National Statistics Agency’s (ZimStat)’s consumer price index (CPI) report for June, headline deflation decelerated to 1,37% y-o-y in June, compared with 1,69% y-o-y the previous month as deflationary pressures persist.

The report said food and non-alcoholic beverages deflation rate decreased to 4,04% y-o-y in June, compared with 4,13% y-o-y the previous month while the housing, water, gas and fuels deflation rate decreased to 1,58% y-o-y in June, compared with 2,17% y-o-y the previous month.

Zimstat said the education inflation rate increased to 17,24% y-o-y in June, up from 14,2% y-o-y in the previous month. On a m-o-m basis, headline inflation reached 0,19% in May compared with 0,24% m-o-m deflation in the previous month.

Deflation peaked between October and November 2015 at above -3% before easing each month to current levels.

Economist Prosper Chitambara said easing deflation was a sign of a weakening economy typified by dwindling aggregate domestic demand.

He said the trend is expected to persists and even worsen going forward, spelling doom for the economy.

“For the formal businesses that are still operating, it means subdued turnover and profits which may result in downsizing,” said Chitambara.

“For the economy, it implies a further decline in fiscal revenues, which will affect the ability of government to meet its obligations timeously.”

Oxford University’s NKC African Economics (NKC) said deflationary pressures have eased since November 2015, although the food and non-alcoholic beverages deflation rate remains elevated.

“The drought effects are now starting to filter through into food prices and we expect the food and non-alcoholic beverages deflation rate to continue easing. In addition, cash constraints curtailed imports in June as businesses struggled to import raw materials and other products, thus depressing supplies,” said NKC in a report on Tuesday.

“With the recent ban on certain products from the open import system, we expect a build-up in inflationary pressures as a result of shortages. Furthermore, the manufacturing sector’s utilisation capacity is very low, hampered by liquidity constraints and aging equipment, among other issues, and will not be able to meet demand.”

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