Zim breaks into positive inflation

Business Reporter
The annual inflation rate has broken onto positive territory for the first time in 29 months after gaining 0,71 percentage points on the January 2017 rate of -0,7 percent to 0,6 percent in February.This means prices, as measured by the all items Consumer Price Index increased by an average of 0,06 percentage points in the 12 months to February 2017, the Zimbabwe National Statistics Agency said.

Zimbabwe first entered deflation in February 2014 when the annual rate of inflation shed 0,9 percentage points to 0,49 percent, as prices continued to fall in relation to a strong US dollar.

The country’s headline inflation has remained largely negative since October 2014, as the strong dollar and weak aggregate demand eliminated any latitude for traders to sustain price increases.

The annual food and non alcoholic beverages inflation for February, prone to transitory shocks, stood at 1,29 percent whilst the non-food inflation rate was -0,51 percent,” ZimStat said.

Economist Professor Albert Makochekanwa said: “The movement of inflation to the positive territory is on the back of improved consumer demand of local goods following SI 64 of 2016.”

Month-on-month inflation rate in February gained 0,38 percentage points on the January rate of 0,23 percent to 0,61 percent.

“This means that prices as measured by the all items Consumer Price Index (CPI) increased at an average rate of 0,61 percent from January 2017 to February 2017,” ZimStat reported yesterday.

ZimStat said the month-on-month food and non alcoholic beverages inflation rate stood at 1,56 percent in February 2017, gaining 0,77 percentage points on the January 2017 rate of 0,80 percent.

The monthly non-food inflation rate came in at 0,17 percent, gaining 0,20 percentage points on the January 2017 rate of -0,03 percent.

There have been many schools of thought about the factors behind Zimbabwe’s negative inflation with some suggesting it reflected worsening of deep seated problems in the domestic economy.

However, a recent study conducted by the Reserve Bank of Zimbabwe showed that most of the factors that exerted pressure on the inflation rate were an overly strong dollar, relative to Zimbabwe’s trading partners and a host of external forces.

Zimbabwe uses a multicurrency regime, which sees it use a number of foreign currencies dominated by the US dollar, but include currencies of Britain, Botswana, South Africa, Australia, China and Japan.

Since Zimbabwe scrapped its local currency in 2009 due to high inflation, after nearly a decade of economic recession, the green back has been appreciating in value against most major currencies.

The scenario kept pressure on prices of goods sold locally, as it made importing from countries with weaker currencies a lot cheaper. Zimbabwe’s economic crisis over the decade to 2008 meant that the country had to import consumptive and capital products.

According to the RBZ study, 58 percent of factors that drove Zimbabwe’s headline inflation into negative territory came from outside.

The study says the inflation decline came against the backdrop of decline global food and commodity (mineral and oil) prices and strengthening of the dollar and falling local industrial production.

Economists, academia and policy makers have proffered divergent views about the potential impact of negative inflation in Zimbabwe with some saying it was positive while others said it was bad.

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