Inflation dragon: Blaming victims

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THERE is a war currently raging in Zimbabwe. Not conventional warfare, but a war over prices. It pits President Emmerson Mnangagwa and his government on one side and business on the other.

Zimbabwe’s inflation rate peaked to 66,8% in March 2019 from 59,39% the previous month. In January it was 56,9% — the highest rates since the 2008-2009 hyperinflation era at the height of the economic meltdown. Inflation rate then scaled billions.

Mnangagwa and other authorities claim business is engaged in “bad economics”. They say corporates and retailers are behaving in an “unethical”, “indisciplined”, “inhumane” and “unpatriotic” way. Officials have also accused business of being “financial terrorists”.

The fundamental assumption of the government’s theory is that competitive market forces have little or nothing to do with the determination of prices. In other words, business has discretionary power in setting prices. Captains of industry have, however, dismissed this, saying government needs to understand the prevailing harsh economic environment and revisit its toxic policies. Effectively, business says Mnangagwa and his regime must stop burying their heads in the sand and confront the ugly consequences and reality of their policy decisions and actions.

Consumers are caught in the middle of the price volatility and the ensuing fight. This brings into focus the African proverb: When two elephants fight, it is the grass that gets trampled and suffers. Mnangagwa and his regime need to be aware of how their policies affect those they govern. The current environment is characterised by foreign currency and cash shortages; unsustainable high budget (until recently) and current account deficits; rising inflation pressures; capital flight; infrastructure decay; poor social service delivery and stalled international re-engagement process, among other problems. Of course, Finance minister Mthuli Ncube claims he is now recording budget surpluses due to austerity measures. This is questionable given that he imposed the 2% intermediated money transfer tax and other taxes which have allowed him to spend more and save. The 2% tax is, however, hitting businesses hard and is inflationary.

Even then, fixing the budget deficit alone is just not enough. The problem is far bigger than that. Hence, urgent reforms are needed. It cannot be business as usual. Bold decisions need to be taken to ensure recovery. But so far we have seen a lot of piecemeal reforms, not structural changes. It is more of tinkering than thoroughgoing reforms. Government’s economic interventions on currency and the exchange rate, as well as subsidy curtailing or removal since October last year have been disastrous, even though unavoidable.

So who should be held accountable for the price spikes? And how can the inflation dragon be tamed within a reasonable range?

Let’s be clear about this: Mnangagwa’s regime is certainly to blame for current inflationary environment and price escalations. Government policies and measures — which triggered arbitrage and speculation — have largely fuelled inflation. Blaming bad business practices, which do exist by the way and must be curbed, for inflation — without considering government policies and cost-push and demand-pull factors in the market — is rank madness. It’s ill-advised scapegoating.

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