. . . blended inflation inadequate for economy — experts

ACCOUNTANTS, economists and trade unionists have lambasted the move to use blended inflation as the benchmark of inflation reading in a country where most companies report financials in local currency and pay salaries in the same currency.

Authorities whilst reporting February inflation, said the country will now measure inflation using a weighted average of items priced in Zimbabwean dollars and U.S. dollars.

Previously the official rate was based only on items in the local currency although the U.S. dollar is widely used alongside the Zimbabwean dollar and South African Rand.

When asked if they are going to continue publishing ZWL inflation figures Zimbabwe National Statistics Agency (Zimstat) Director General Taguma Mahonde, told Business Weekly that the local currency inflation will not be published as per Statutory Instrument (S.I.) 27 of 2023.

“The S.I. 27 of 2023 which states that, “rate of inflation” means the general increase in price levels of goods and services measured as a weighted average based on the use of Zimbabwean dollars and United States dollars over a given period of time.

“The dissemination of inflation rates with effect from the date of publication of this notice shall adopt this method of measuring inflation. This implies that only the weighted inflation rates will be published. For the avoidance of doubt, ZWL inflation figures will not be published as per the provision of the aforementioned SI,” Mahonde said.

In terms of ratios used in calculating blended inflation, Mahonde said;“Survey data revealed that 79,32 percent of the transactions occur in USD while 20,68 percent occur in local currency. The weighted inflation reflects these ratios.”

Economist Dr Prosper Chitambara, said authorities are making life for the business community harder by choosing blended inflation as the benchmark inflation reading.

“The issue is a critical one, because

companies do not account in blended terms but exclusively in USDs or ZWL so it becomes an issue to have the blended rate as the benchmark inflation. Interest rate calculation for those borrowing or collective bargaining is going to complicate things,” he said.

Same sentiments have been aired by accountants and workers groups that the new base inflation reading is complicating their respective professions.

Dr. Chitambara added that; “However, in my engagements with the governor (Dr. Mangudya) during a recent breakfast meeting my understanding is that the ZWL interest rates will be aligned to the ZWL inflation rate. This now becomes an issue because we are not yet sure if the local currency inflation will still be published for public consumption.”

Authorities have maintained that inflation of local currency will still be used to calculate interest rates, but economists and accountants are arguing that they need to see it so that our accounts are adjusted accordingly.

Dr. Chitambara concluded by saying publication of both sets of inflation rates (Blended and ZWL) should continue because most employees earn ZWL and would need to use the rate for collective bargaining. Companies also report in ZWL and will continue to need the ZWL inflation in order to prepare inflation adjusted figures.

Economist, Enoch Rukarwa, weighed in saying the economy does not have blended loans so interest rates will still be based on either currency inflation, so it still needs to be published.

“Interest rate calculation or determination for USD and ZWL credit facilities is mutually exclusive and independent. Lately the Reserve Bank of Zimbabwe has been referencing inflation trends to determine optimal interest rates.

“However, with blended inflation that modelling process will not be possible since our financial sector loans are either ZWL or USD and not blended,” he said.

According to Rukarwa, inflation adjustment on financial numbers will require independent inflation rates that are either USD or ZWL. Blended Inflation numbers without supporting input inflations (USD & ZWL) will be inadequate in financial statement preparation and efficient cost determination.

Accountant, Kudzanai Mugwamba, said the financial accounts are already qualified due to the issue of exchange rates to be used and now inflation will add to the problems.

“It is tough to be an accountant right now because we are already struggling on which exchange rate is the most relevant one, now we are going to be comparing ZWL inflation adjusted figures to blended inflation figures which then distorts the reporting,” he said.

Veteran trade unionist, Peter Mutasa, said the blended inflation move is going to disadvantage employees as they are not earning blended salaries.

“Blended inflation does not take into account the reality of most employees as they are predominantly paid exclusively in local currency as employers are refusing to pay in blended form. So this means that workers are going to be shortchanged by being underpaid and carry the cost of exchange rate losses,” Mutasa said.

According to Mutasa, such a move has serious implications to workers and it will give advantage to employers and service providers.

“Employers will be at an advantage as they will use a lower and irrelevant inflation figure to calculate wages as there is no publishing of local currency inflation. We will see workers not being able to feed their families because in reality local currency inflation is real and that is what they earn exclusively,” he added.

The move to change base inflation reading to blended inflation has not raised eyebrows but the stoppage in publishing local currency inflation figures has left the business world in limbo on what to use for their exclusively local currency activities.