Inflation is back, more on the way
INFLATION was supposed to be a thing of the past, with both fiscal and monetary authorities projecting lower inflation going forward after it came down from a peak of 837 percent in July 2020 to a low of 50,2 percent in 2021.
But despite all efforts, inflationary pressures are expected to persist in Zimbabwe fuelled by imported inflation trickling down to fuel and food inflation, according to financial services giant Old Mutual Zimbabwe.
Writing in its Economic Update for February 2022, Old Mutual added that foreign currency shortages and increased spending by government will also add to the inflationary pressures.
The comments come as the world economy is grappling with elevated oil and food prices that breached long term record levels.
Oil prices have jumped more than 30 percent since 24 February, touching $139 a barrel at one point this week. The oil price had fallen back to about $106 a barrel at one point on Wednesday, but by 3 pm on Thursday it was trading at around $115,20.
In turn, Zimbabwe also put up its fuel prices with the maximum pump price for diesel now set at US$1,68 and petrol US$1,67. A week ago, petrol was retailing at US$1,44.
The Zimbabwe Energy Regulatory Authority (ZERA) also announced price hikes of liquefied petroleum gas (LPG) for March, set at US$2,07 from US$2,03 a kilogramme.
The Confederation of Zimbabwe Industry (CZI) said the increase in crude oil prices affect Zimbabwe inflation expectations in a negative way.
“Fuel is a major cost driver in the economy and an increase in its price will have trickle-down effect to the general pricing of goods and services in the whole economy.”
Food prices have also been going up with the head of the World Food Programme, David Beasley, warning the “conflict in Ukraine could send global food prices soaring, with a catastrophic impact on the world’s poorest”.
Ukraine and Russia are both major exporters of basic foodstuffs, and the war has already hit crop production, driving up prices.
Russia and Ukraine are major wheat producers and the conflict between these two countries is resulting in increased wheat prices.
With food price inflation already at crisis point in some countries prior to the outbreak of hostilities in Ukraine, Zimbabwe which has its own challenges including a potential poor harvest, currency shortages and increased spending by government is likely to bear the brunt.
Zimbabwe imports approximately 50 percent of its wheat requirements therefore, increase in wheat prices, will translate into increased prices for goods such as bread and cereals.”
This trajectory, according to the CZI, in its February 2022 Inflation and Currency Development Update, will make it difficult if not impossible for the authorities to achieve the set target of 35 percent annual inflation by end of 2022.
“Changing the trend requires immediate and not delayed action on the policy correction that will set the path back to the downward trends of 2021,” CZI said.
“Without immediate policy correction decisions, it is difficult to see how this trend will retreat on its own.”
With inflation reaching 66,1 percent in March, CZI said there is urgent need to reverse the upward trend in inflation as further delays might see the situation getting worse in the following months as inflation expectations take hold due to developments at the global level.
The business loby group said maintaining a tight money supply a control framework and having an effective and efficient foreign exchange market will help ease inflationary pressures.
“If these two steps are implemented, the major source of our inflationary pressures, which is fluctuations in the parallel market premium, would be managed,” CZI said.
While Old Mutual expects increased spending associated with elections to boost beverages, printing, clothing, entertainment, transport, fuel and food sectors, CZI believes this could be a source of inflation.
“History has taught us that, a year prior to elections, there will be massive fiscal spending as political parties’ campaign.
“In an economy like Zimbabwe, massive injection of liquidity in the market has dire consequences on the inflation front,” reads part of the CZI report.