Experts cast fresh doubts on 2021 inflation targets

FIDELITY MHLANGA

UNITED States-funded food information platform, Fewsnet this week said poor macroeconomic conditions will persist this year in Zimbabwe, marked by high inflation, which has been triggered by spiking utility costs.

Fewsnet’s latest forecast report for the period February to September 2021 said Zimbabwe’s fuel prices increased even in United States dollars by 5% last month following a series of hikes in December and January.

Diesel and petrol prices rocketed by a cumulative 23 and two percentage points respectively between December last year and January 2021, the report noted.

It said toll and transport fares also substantially increased in both the Zimbabwean and US dollar terms, sparking off a price rage.

Zimbabwe’s year-on-year inflation rate dropped to 321,59% in February, from 362,63% in January.

The rate closed 2020 at 348,59% but is projected by the Reserve Bank of Zimbabwe to further decline to 10% by year end.

“The cost of government-subsidised public transport fares increased by between 90% and 100% in January,” the Fewsnet report says.

“Electricity and other utility tariffs have also gone up, impacting mostly the urban poor, some of whom are now forgoing these expenses to focus on food purchases.

“Poor macroeconomic conditions are expected to prevail throughout the outlook period marked by the continued high annual inflation rate.

“The government has projected annual inflation to close the year at below 10%, which most independent analysts have dismissed as too optimistic,” the report points out.

Fewsnet said while fuel shortages were unlikely, based on recent trends, petroleum price increases were likely to continue, both in US and Zimbabwean dollar terms.

It said this development was likely to increase pressure on transport costs and drive price increases.

“Electronic and mobile money payments will likely continue to attract high premiums on the markets compared to cash payments,” the report notes.

“The average cost of living in rural and urban areas will likely continue to increase, impacting mainly poor households’ access to food and other basic needs. Water availability and access are anticipated to improve significantly across most parts of the country, especially in typical semiarid areas.

“High water tables will sustain stream and river flows, dams, wells, and boreholes for longer than usual, improving winter cropping and seasonal income-earning activities such as vegetable production and sales, brick making, and construction to levels higher than recent years,” it says.

The report was released during the same week when the African Development Bank (AfDB) projected that Sadc’s year-on-year inflation rate will fall to 6,8% by the end of 2021, underpinned by tighter monetary policy measures being rolled out by central banks.

However, the AfDB said Zimbabwe was an “outlier” in the region.

“The inflation rate is one of the indicators used to measure southern Africa macroeconomic convergence,” AfDB said in its report titled Southern Africa Economic Outlook released this week.

It said economies had been able to contain the inflation rate below the Sadc macroeconomic convergence target of a single digit from 2011 to 2019, except for 2016.

“Having declined from 6,9% in 2011 to 5,7% in 2015, inflation increased sharply to 11% in 2016 before declining to 7,1% in 2018. In 2019, inflation jumped up to 9,8%.

However, inflation is projected to rise in 2020 to 12,5% before dropping to 6,8% by 2021 due to some renewal of tighter monetary policy and lower government expenditure,” the AfDB said.