New measures bear fruit as inflation drops

Tapiwanashe Mangwiro-Senior Business Reporter

Monthly inflation fell to 1,8 percent this month, its lowest since April last year and the second lowest for more than three years, as the market-led and effective policy interventions by the Government and the Reserve Bank of Zimbabwe continue to succeed in holding prices down.

Giving even more cheer to hard-pressed consumers, the fall in monthly inflation was led by food prices according to ZimStat, the national statistics agency, with food on average rising just 0,9 percent overall in price as the price cuts and slight increases almost balanced out.

Monthly inflation rose gradually but steadily in the last half of last year and the first quarter of this year after being beaten back following the surge seen just before the auction system and other measures smashed black market pricing in the middle of 2020.

Then it suddenly shot up to peak at 30,7 percent in June, before the Government and Reserve Bank launched a swathe of measures to smash the speculation that was driving up the black market exchange rate and which in turn was driving inflation. They worked.

The measures were anchored around pushing up interest rates to 200 percent, so speculators could not make money by borrowing to play the black market. At the same time,  a number of measures were taken to take ordinary businesses out of the black market, from selling gold coins to those that wanted a legal store of value, introducing the interbank market run by the banking system to set the official exchange rate. The result has been rapidly growing stability.

The latest slowdown in the pace at which prices have been going up represents the fifth consecutive month the monthly inflation rate has trended down from its June peak, with Treasury having projected it to close the year well below 3 percent, a target already beaten a month early.

“The month-on-month Food and Non-Alcoholic Beverages inflation rate stood at 0,9 percent in November 2022, shedding 2,2 percentage points on the October 2022 rate of 3,1 percent. The month-on-month non-food inflation rate stood at 2,6 percent, shedding 0,6 percentage points on the October 2022 rate of 3,2 percent,” ZimStat said.

According to ZimStat, on a year-to-year basis, inflation cooled down to 255 percent in November from 268,8 percent in October and 280,4 percent in September 2022. This will continue to inch down each month as the latest month has a lower monthly inflation that the same month a year earlier, and then in the second quarter of next year it will suddenly plunge as the high monthly figures of that time this year are removed from the calculations.

Inflation, usually measured monthly or yearly, represents the rate at which prices either go up or decrease over the measured period. A decline in the rate, however, does not necessarily signify falling prices but the reduced pace at which prices are rising.

The data for the latest inflation figures were collected from November 10 to 16, 2022. Zimbabwe’s inflation hit a post-dollarisation peak of 837,5 percent in July 2020, before a coterie of policy interventions saw it slump to a two-year low of 50,1 percent in June last year.

Economist Tinevimbo Shava said: “The review and enhancement by the Government of its procurement processes and practices to ensure value for money have resulted in the stability of the exchange rate and a decline in inflationary pressures, so this is not a surprise.”

Another economist, Namatai Maeresera commented: “The country has been on a monetary policy tightening stance and these are the benefits of such measures, the gold coins, high-interest rates and Government (public contract) payment (value for money audits) stance have led us to this point and all should be commended.”

Part of the cocktail of interventions introduced by monetary and fiscal authorities entailed raising the bank policy rate, which determines the minimum bank lending rates, from 80 to 200 percent to stymie speculative borrowing.

This comes after authorities discovered that speculative activities in the economy, to exploit arbitrage opportunities, included illegal trading in currency and stocks on the Zimbabwe Stock Exchange, which drove exchange rate volatility and inflation.

Higher interest rates have made borrowing to finance speculative activities expensive and unprofitable while the value for money audits on all public contracts and rationalisation of payment modalities thereof, have cut the flow of excess liquidity into the market, which drove exchange rates and inflation.

RBZ Governor Dr John Mangudya is on record saying while there have been calls from certain quarters for authorities to loosen the tight monetary policy stance said to be hurting business, prevailing stability would not be sacrificed for any kind of short-term benefits.

Commenting on the same issue recently Finance and Economic Development Minister Professor Mthuli Ncube is on record saying: “I think once we see that downtrend in month-on-month inflation being sustainable, maybe over a three to four month period, then we can begin to think about lowering interest rates. But for now, the tough monetary-regime stance and the tough fiscal stance also stand. That’s what it takes to bring stability and bring things under control.” 

Economist Dr Prosper Chitambara said the interest rates were at the right level and Treasury was correct on the need to first see a sustained period of stability before inflation is on durable monthly and annual decline. He however acknowledged this would come with some consequences such as negatively impacting growth targets.

Tony Hawkins, a University of Zimbabwe professor of Economics earlier argued that the interest rates were at optimal levels and that Treasury was towing the correct line.

 “In the end, this will perpetuate financial disintermediation and probable market bubbles on the stock market, as customers will look for alternative, non-bank based, investment options,” he said.