Zimbabwe’s overall annual inflation shed 78,7% easing to 505% year-on-year (y/y) in April from 583,7% y/y in March, Standard Bank said in a research brief on Monday, attributing the lowering of inflation to the administrative measures in the recent past.
Food inflation declined to 563,5% y/y in April from 655,9% y/y in March while it fell to 3,7% month-on-month (m/m) in April from 5% m/m in March.
Annual inflation of the bread and cereals component was 843,2% y/y and the meat component registered 589,9% y/y. The food component has a 33% weight in the consumer price index (CPI).
The beverages and tobacco category’s annual inflation fell to 457,4% y/y in April from 510,8% y/y previously, however m/m inflation rose to 5,7% in April from 0,7% m/m, noted Standard Bank economist and author of the brief Robert Bunyi. This category is second highest after food with a 16% weight in CPI.
The transport and communication category registered lower annual inflation of 626,9% y/y in April, down from 820,4% while the clothing and footwear category similarly recorded lower inflation at 448,9% y/y from 477,7% y/y.
The recreation and entertainment category recorded an annual inflation of 395,5% y/y while the education category registered 514,3% y/y.
“The reduction in annual inflation has been underpinned by fairly rapid declines in food inflation and food inflation is now in single digits on a month-on-month basis. Recent press reports indicate the government estimates the country will produce just over 2,8-million tons of grain this year and will exceed the country’s national food requirements,” Bunyi said.
“Assuming the projections are achieved food inflation will cease to be a threat to overall inflation over the medium term.”
He said as the Reserve Bank of Zimbabwe effectively devalued the local currency it gave further relief to exporters.
“This action is expected to increase market confidence in the foreign exchange auction system and improve foreign exchange availability,” he added.
Bunyi said the continuation of the low interest rate lending facility coupled with higher crude oil prices and a depreciating currency will exert inflationary pressures that will eventually reverse the current declining trend in inflation.
Looking ahead, Bunyi said: “The key issue now is the stability of interest rates as opposed to the level of interest rates.”
“The Reserve Bank may have to incorporate a programme of periodic devaluation of the Zimbabwe dollar as part of the process of injecting some stability in the money markets. In the meantime we expect that it will maintain its present path of reducing interest rates.” – I-Net Bridge