Inflation to rise to 75%: Forecast
THE year 2022 is likely to be characterised by the same challenges that bedevilled the economy with inflation forecast to surge to 75% by December.
The Reserve Bank of Zimbabwe (RBZ) in October 2021 revised its year-end inflation outlook for a third time, to as high as 53% up from targets of between 25% and 35%, while annual consumer price inflation spiked for the third straight month to 58,4% last November from 54,5% in October. Inflation ended the year at 60,74%.
A rise in global commodity prices, an increase in power tariffs and a weakening of the local currency against the US dollar on the black market were cited as inflationary factors.
In the past year, the market also witnessed price increases due to high fuel costs, transportation shortages and poor road conditions. Despite a government directive that companies accessing foreign currency on the official auction system must sell goods in the local currency at official exchange rates, fuel has been sold almost exclusively in US dollars. This has been negatively affecting workers earning the Zimbabwe dollar.
Economic analyst Victor Bhoroma told businessdigest that the economy was likely to continue with the same pattern when it comes to double digit to triple digit inflation, money supply growth, re-dollarisation and informalisation of the economy.
Industrial capacity utilisation also headed north in 2021, compared to the prior year, with other productive sectors such as mining also recording growth.
Rural incomes, where the majority of the populace lives, also improved in 2021 and somehow stabilised domestic demand.
On the downside, the Covid-19 pandemic significantly choked the potential of the economy in 2021, especially in sectors such as tourism and others. Bhoroma said key risks remained on inflation, elections and foreign exchange inefficiencies in the market.
“Firm mining commodity prices and increase in Diaspora remittances will anchor the improvements in the current account balance and sustain domestic demand especially for consumer goods, building materials and real estate (property) but basically 2022 will be a replica of 2021 when it comes to double digit to triple digit inflation, money supply growth (agriculture subsidies, commodity payments and infrastructure development payments), the re-dollarisation and informalisation of the economy,” he said.
“Rainfall will be below last season levels, which may impact dam levels and electricity generation capacity. Forecast on output growth is around 3-4% real GDP growth and inflation is expected to be around 75% by December 2022.”
Economist Clemence Machadu said the economy was going to build upon the foundation which was set by 2021 where good rains spurred the agricultural sector.
“Coming to 2022, I see the above normal rains being experienced likely to boost economic activities, especially agricultural production as well as the upper value chains. The levels of (Covid-19) vaccination will also be the key on the extent to which the potential of other sectors whose wings had been clipped over the past couple of years will be unlocked,” he said.
“This year is also generally going to be marked by political parties getting into an election mode and intensifying contestations; and that is likely going to bring uncertainties as well as cloud economic progress.”
He said policy consistency was key to improving the economy.
“So it is really important to ensure policy consistency and strengthen business confidence this year. We all know that capital is a coward, especially in this election season. On competitiveness, I think the increase in electricity tariffs will have a huge toll on business and might increase cost of production, resulting in price increases.”
Machadu said the government should also attend to the challenges experienced last year, especially foreign currency shortages, and an ineffective foreign exchange allocation mechanism.