HomeBusiness Digest‘Inflation rate understated’

‘Inflation rate understated’

THE 4,29% year-on-year inflation rate announced by the Zimbabwe national statistical agency (ZimStat) is understated because it is not based on prevailing market fundamentals, economic analysts have pointed out.

By Kudzai Kuwaza

The rate hit 4,29% in July, up from 2,91% in June last year, an increase of 47,48% in the Consumer Price Index (CPI), which measures changes in general price levels, driven mainly by food and non-alcoholic beverages, according to ZimStat.

However, commentators say these numbers are not an actual reflection of the rate at which prices are rising.

Economist Prosper Chitambara said the statistics ignore the informal trading of money at premium rates.

“The inflation rate is understated because it is based on official statistics,” Chitambara said. “It does not take into account the widening black market premium, taking place on the informal market.”

He said the inflation rate also does not reflect the change in consumption patterns by consumers.

Chitambara said the inflation rate would be higher if ZimStat was using the purchasing power parity (PPP) index.

PPP is an economic theory that compares different countries’ currencies through a “basket of goods” approach.

According to this concept, two currencies are in equilibrium or at par when a basket of goods (taking into account the exchange rate) is priced the same in both countries.

Economist and a former member of the Parliamentary Portfolio Committee on Finance, Eddie Cross, concurs that the inflation figure is grossly understated by ZimStat.

“There is no doubt about it, inflation is actually between 30-40% and as high as 100% on imported goods. These are the figures that the International Monetary Fund seem to be working with,” Cross said. “With a US$1,35 billion deficit, inflation can only accelerate.”

Cross warned that it is dangerous for ZimStat to release inaccurate inflation statistics.

“It is extremely dangerous when we cannot believe our own figures,” Cross said. “Policies are based on these numbers so if the numbers are wrong, the policies will also be wrong.”
Economist John Roberston said inflation was understated, especially for goods on the high end of the market.

He however warned that inflation could skyrocket due to the growth of money supply which is at 10 times the rate of economic growth.

There has been widespread doubt at some of the statistics availed by ZimStat, particularly on levels of employment in the country.

The national statistical agency recently revealed that unemployment levels in the country are less than 7%, a figure which was received with widespread derision.

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