Zim’s deflation only academic: Zimcodd

BY MTHANDAZO NYONI

ZIMBABWE’S slackening year-on-year inflation rate may not translate into real improvement in the quality of life for most citizens in the absence of real wage growth, radical wealth distribution and long-term public sector-led economic recovery, according to the Zimbabwe Coalition on Debt and Development (Zimcodd).

In its latest report, Zimcodd said for Zimbabweans to benefit from lower inflation, the government had to roll out strategies that help people build up savings.

It said the falling inflation witnessed in the past year was a positive sign.

The country’s year-on-year inflation dropped to 194% last month, from 240,55% in March, sustaining a trend that started in August last year after the rate hit 837% in July, the highest level since 2009.

“In normal economic transition spells decreasing inflationary pressure contributes to economic stability, and promotes savings and investment culminating growth,” Zimcodd said.

“Though it is too early to discern the long-term impacts of lowered inflation, prevailing signs indicate that without real wage growth, radical wealth distribution and long-term public sector-led economic recovery, the benefits of lowered inflation will not translate into tangible improvements in the quality of life for most Zimbabwean households. Lowered inflation is not a magic bullet, as it only refers to the formal economy, whose essence continues to be dominated by the informal sector. The generality of Zimbabweans transacts in the informal sector, where prices construe to the parallel market exchange rate thus the actual inflation might exceed the ‘formalised’ inflation rate,” it said.

“It is high time the government co-opts the informal sector in the compilation of its statistics or devises a measure of inflation associated with the informal sector, the same way it devised the blended inflation rate if the reality of the economy is to be incorporated in public policy.”

In spite of the lower inflation rates, Zimcodd said a steady increase in the prices of essential household goods and services has been observable throughout the Covid-19 pandemic with already poor households sinking deeper into debt and poverty.

“High cost of foods, rentals, education and debt servicing fees in addition to the upcoming presumption tax regime place huge survival burdens on poor households and weaken aggregate demand in the broader economy. Mechanisms to facilitate the shared economic benefits of lowered inflation to all Zimbabweans are in need,” it said.

Zimcodd said the suppression of civil service salaries by the government, the country’s largest formal employer, was working against workers.

Accelerated state-led infrastructure growth, social security and social service delivery programmes to create jobs and facilitate shared economic growth across all regions were critical to embed the progress towards reducing inflation, the report added.