The continued stay of the country’s inflation rate in the negative territory is a sign that the economy is now in fully fledged recession with the trend expected to continue for the better part of the year.
This comes as the year-on-year inflation rate (annual percentage change) for the month of February 2015 stood at -1,40 percent, shedding 0,12 percentage points on the January 2015 rate of -1,28 percent.
At the same time, the International Monetary Fund (IMF) has revised downwards Zimbabwe’s economic growth in 2015 to 2,8 percent from the 3,2 percent it had projected late last year.
The downward revision was largely due to the poor agricultural season and depressed international commodity prices.
In an interview last week with a local financial news and research service, IMF mission leader Mr Domenico Fanizza said Zimbabwe should lay the foundation and basis for stronger reforms to spearhead economic growth.
“Growth is likely to weaken further than before. We are expecting growth of 2,8 percent in 2015 because the agricultural season seems not to be good at the moment and we expect a general decline in the production of mineral commodities,” he said.
Analysts say the negative inflation trend is an indication that the economy is not performing and that it is a sign that aggregate demand is choked while price movement is stagnant.
“This trend is meant to continue for as long as it is difficult for consumers to command meaningful purchasing power. This negative growth in inflation is itself reflective of weak demand due to lack of liquidity,” economist Mr Joseph Sagwati said.
The Zimbabwe National Statistics Agency (ZimStats) last week said that prices as measured by the all items Consumer Price Index (CPI) decreased by an average of 1,40 percentage points between February 2014 and February 2015.
The year-on-year inflation rate is given by the percentage change in the index of the relevant month of the current year compared with the index of the same month in the previous year.
ZimStats said the year-on-year food and non-alcoholic beverages inflation prone to transitory shocks stood at -2,87 percent whilst the non-food inflation rate was -0,68 percent.
The month-on-month inflation rate in February 2015 was -0,07 percent, gaining 0,27 percentage points on the January 2015 rate of -0,34 percent.
This means that prices as measured by the all items CPI decreased at an average rate of -0,07 percent from January 2015 to February 2015.
The month-on-month inflation rate is given by the percentage change in the index of the relevant month of the current year compared with the index of the previous month in the current year.
The month-on-month food and non-alcoholic beverages inflation rate stood at 0,05 percent in February 2015, shedding 0,35 percentage points on the January 2015 rate of 0,40 percent.
The month-on-month non-food inflation rate stood at -0,13 percent, gaining 0,57 percentage points on the January 2015 rate of -0,69 percent.
To arrest the negativity, economists say, it would require boosting consumer demand through price discounts.
“It is somewhat unorthodox to talk of sprucing up inflation because the usual trend is to fight inflation from rising. Now to work on bringing inflation up is a different proposition.
“The easiest arrangement to arrest negativity would be to boost aggregate demand through increased salaries and enhanced discounts on a lot of products,” the economist said.
“Create credit facilities both of incomes and of products to boost sales.”
Mr Fanizza, who was in the country for the 1st Review of the International Monetary Fund Staff Monitored Programme, said “low” inflation affects Zimbabwe’s competitiveness against its trading partners.
“I am not sure if we can talk of deflation because deflation is defined as a protracted decline in the price levels meaning significant reduction. I think we are in a situation of low inflation. The determinants of the deflation include that it’s a worldwide condition-inflation is low in the world.
“The second is that you import inflation through dollarisation of the economy; in this case you are importing deflation from abroad. That makes it low.
“Your economy is suffering from the appreciation of the dollar against the South African rand. Your imports from South Africa now cost much less than what they used to cost a year ago,” said Mr Fanizza.
“Low inflation is something which will help your competitors because if domestic inflation is lower than that of your trading partners it means that your competitiveness is affected,” he said.