Zimbabwe’s inflation broke to new levels in January, rising to 622,8% from 598,7% in December 2003, Standard Bank said in its research brief on Thursday.
The rise followed a respite in December. The monthly increase was 13,7% in January from 11,2% in December. January’s month-on-month (m/m) inflation is below the 19,7% average recorded in the second half of 2003, Standard Bank economist and author of the brief Robert Bunyi said.
The country’s inflation is forever on the rise, and is expected to reach 800% before April. This is mainly attributed to the sharp climax that usually takes place in March due to food shortages. Food weighs the highest, at 33%, in the consumer inflation index (CPI) basket.
Zimbabwean data is usually heavily flawed therefore the 623% figure is way better than the actual outlook, some players alleged.
“Food inflation was subdued relative to other categories of the inflation index in line with the historical annual inflation cycle. Month- on-month food inflation declined to 13,5% in January from 13,9% in December, and annual food inflation was 665,7% in January up from 635,6% in December year-on-year [y/y],” Bunyi explained. The oil and fats component of the food inflation registered an 808% rise in January.
Beverages and tobacco annual inflation fell to 575,4% in January from 589% in December, while m/m inflation rose to 6,8% in January from 6% in December.
“The rent, rates, fuel and power category of inflation rose by 58,4% m/m and 436,5% y/y in January from 7,8% m/m and 355,1% y/y in December. It seems the effect of recent increases in municipal rents have started to come through in the category’s sub-index calculations,” Bunyi pointed out.
Furniture and household inflation rose by 28,9% to 533,8% in January, while clothing, footwear and transport and communication monthly inflation was lower at 15,5% from 15,8%.
Annual inflation rates were 552% for clothing and footwear and 1086,1% for transport and communication in January, following communication costs’ surge by 59,7% m/m in January from 7,7% in December.
“A brief pause in the ever-accelerating inflation rate was occasioned by softer food prices, which at first glance, seem to be counter-intuitive to the expectation that supply short falls are entrenched. However, the seasonal food inflation cycle is most likely the reason behind softer food inflation following improved supplies,” Bunyi asserted.
He said the recent introduction of the foreign currency auction has offered limited relief from hard-currency shortages.
Initial auctions helped strengthen the country’s unit by 20% — from Z$4Â 200 to Z$3Â 500 against one United States dollar.
“The market remains very thin with foreign currency supply averaging $8-million at each auction and demand continually exceeding this figure. The parallel rate has depreciated to Z$4Â 500 owing to the inability of the auction market to meet demand. It is now clear the [Zimbabwean] Reserve Bank is intervening in the auction market to achieve an upper limit on the auction rate to about Z$3Â 700.
“The Reserve Bank’s policy to continue with the low lending rate regime for the productive sector is injecting substantial liquidity into the economy. Consequently, interest rate volatility and uncertainties coupled with the increased liquidity will exert pressure on the Zimbabwe dollar to depreciate,” Bunyi continued.
He expects macro-economic instability to undermine overall output, increasing supply shortages. The agricultural sector is set for production difficulties due to inadequate resources for critical inputs. Inadequate rainfall widely expected in Southern Africa will exacerbate the situation.
The United Nations World Food Programme said grinding food shortages has forced some people to resort to negative means to survive such as prostitution and child labour.
The agency will only be able to provide limited quantities of cereals for 3,8-million Zimbabweans in February, and has appealed to the government to release its stocks of maize, believed to be about 250Â 000 tons.
About 12-million people inhabit what was once referred to as the region’s bread basket, and 70% of Zimbabweans live below the poverty line. — I-Net Bridge