Year-on-year inflation wanes

The year-on-year inflation rate for June declined slightly, at a time when observers had expected a period of sustained upward trend.

By Fidelity Mhlanga

The year-on-year inflation rate — which is the annual percentage change in the rate in which prices increase — as measured by the all items Consumer Price Index (CPI) stood at 0,31%, shedding 0,43 percentage points on the May 2017 rate of 0,75 %.

This came as the International Monetary Fund has projected that Zimbabwe’s inflation rate will close at 5%.

Economist Clemence Machadu said: “Inflation for June was largely driven down by the housing, water, electricity and gas cluster of the index, which shed 2,39%.

“Actual rentals were the biggest loser, shedding 7,95%, with oils and fats, fruit and other items also contributing.

“Liquid fuels continued to register double digit rises, increasing to 16,06% in June, after posting another double digit rise in May.”

Financial expert, Persistence Gwanyanya explained that the 0,31% inflation rate did not mean that prices had gone down, but rather they continued to go up, albeit at a slower rate.

“Basically, prices have gone on an upward trajectory, what is important is to understand the drivers of this increase,” he said.

“The level of inflation is healthy for the economy, as long as it is below 2%. But we need to unpack the 0,31% inflation by understanding the major drivers.”

The year-on-year food and non-alcoholic beverages inflation, which is prone to transitory shocks, stood at 1,82%, while the non-food inflation rate was -0,37%.

Gwanyanya said the food and non-alcoholic beverages inflation rate reflects the cost of buying foreign currency on the black market for the importation of consumptive goods.

“What this means is that we have remained a consumptive economy,” he said.

“The inflation rate of 1,82% for food reflects that the country is a consumptive economy. We would love to know what caused it.

“We have remained an import dependent economy and yet our foreign currency is being sourced on the black market at a premium.

“As long as this inflation is driven by the cost of money and not economic activity, this is not the economy we want.

“We want demand-driven inflation, which will encourage production in the economy.”

The CPI for the month ending June 2017 stood at 96,86 compared to 97,09 in May 2017 and 96,56 in June 2016.