Firms decline to use blended inflation
RECENT published financials have shown that adoption of the blended consumer price index (CPI) as the official inflation benchmark may not be appropriate for financial reporting purposes.
This comes as selected companies chose to resort to historical accounting only after failing to comply with the international accounting standard that pertains to hyperinflation reporting.
Government in March this year formally moved to adopt a currency weighted consumer price index as the official measure of inflation to reflect the dual currency structure.
Monetary authorities perceive that domestic expenditure is now 75 percent foreign currency denominated and as such blended inflation will aptly reference the trajectory of the economy.
However, analysts believe blended inflation figures might not present the correct outlook since the local currency has been under pressure as depicted by the sharp depreciation and the widening gap between the black-market premium and the official exchange rate which is trailing way behind. Delta Corporation, decided against using the blended inflation figures from the Zimbabwe National Agency (Zimstat) to determine its financial results for the year ended March 31, 2023 saying they were not indicative of market trends.
Financial director, Alex Makamure, during an analysts briefing recently said the blended CPI was making it difficult to comply with international accounting standards.
“We had the issue of IAS 29 and our very good government decided on March 3 that they will only publish something called blended CPI (Consumer Price Index).
“As you see the numbers, I wasn’t sure if they were presented in Zimbabwean dollars because I saw some reports that said ‘we do not read those numbers, inflation adjusted, neither do we trust your cost mantras,” he told analysts.
Investment analyst, Rufaro Hozheri, told Business Weekly that blended CPI might not be the right inflation measurement instrument reflective of what is happening on the ground.
“Remember some of these companies, especially in the retail space have their own in-house CPI which they track, and they are better off using that to make informed decisions than the blended CPI numbers.
“They would rather get an adverse audit opinion but report numbers that are more representative of actual operations,” he said.
First Capital Bank said it has had to temporarily resort to historical accounting only after failing to comply with the international accounting standard that pertains to hyperinflation reporting, due to Zimbabwe’s recent adoption of a blended CPI.
Listed counters have since 2019 persistently received adverse audit opinions on their financials due to conflicts between standards and legislation.
“In Zimbabwe this year, we are operating at a blended CPI rate, which presents a challenge in the production of inflation accounting...” the Bank said.
Zimre Holdings said the adoption of the blended CPI statistics may not be appropriate for financial reporting purposes and the full impact shall be assessed and published in the group’s half year interim reporting. Enock Rukarwa, also an investment analyst, said financial reporting in hyperinflationary economics is no longer feasible due to unavailability of relevant consumer price indices.
He said in as much the blended inflation numbers capture obtaining dynamics in the inflationary trends, it creates challenges in converting USD numbers to ZWL.