Zimbabwe's shops fill up as foreign currency takes hold

Sean Gammon, the managing director of Imara Capital in Harare, said local stores were as well stocked as any in Gauteng. John Robertson, an economist based in Harare, said figures from the Central Statistical Office showed that prices had fallen for two consecutive months: by 2.34 percent in January compared with December, and 3.1 percent month on month in February.

Gammon cited an example of falling prices. "Late last year, a can of imported beer cost about US$1.50 (R14 at yesterday’s exchange rate) in the supermarket. Now it’s going for about 80 US cents. And local beer is even cheaper at about 65c."

It is not possible to calculate annual inflation because last year, prices of goods and services were denominated in the now defunct Zimbabwe dollar.

The official figure showed year-on-year inflation at more than 230 million percent in July, which was the latest available figure under the old order.

In previous years, President Robert Mugabe’s government made good on shortfalls by issuing more money until the notes were no longer worth the paper they were printed on. The government’s present inability to print money has effectively reduced the country’s monetary base, immediately putting a cap on price rises.

Inflation, which was generally thought to be even higher than the official rate, followed many years of falling output after the government imposed price controls that made it uneconomical to produce. But a new coalition government in February brought changes.

Robertson said price controls were lifted that month and the use of foreign currency became "universal and unconditional", after several months in which the government allowed foreign currency on a limited basis.

The scrapping of price controls and legalising of multiple currencies transformed the situation. But Robertson said the pool of shoppers with access to foreign currency was limited, so retailers had to cut prices to move goods off shelves.

In February Finance Minister Tendai Biti announced a minimum monthly payment of a US$100 voucher to civil servants, police and the army. Many residents are assisted by flows from abroad. But banks hold only the worthless Zimbabwe currency, according to Robertson, because they cannot access other currencies.

At the end of January the official exchange rate for US$1 was Z$7.6 billion. That was after 10 zeroes were slashed from the Zimbabwe dollar last August.

Robertson said prices could fall further because the limited supply of dollars made it impossible for householders to pay the going rate for services from public utilities. The utilities had responded by allowing householders to pay "a token amount to avoid being disconnected".

New prices would be announced next week. He predicted they would be lower, reducing the average householder’s bill from about US$100 a month to between US$15 and US$30. But he said this did not represent deflation, because producers’ costs were not falling.