If you thought US dollar pricing was only temporary, think again. The indicators and events unfolding on the ground are pointing to an even greater prevalence of US dollar pricing. I’m sure by now you have an understanding of why US dollar pricing is on the rise. Businesses are trying to hedge themselves against the scourge of high inflation. Of course, the irony is that in US dollar terms prices of goods and services are actually now cheaper than ever. The irony lies in that the vast majority of Zimbabweans get their incomes in RTGS dollar. Of which the value of the RTGS dollar against the US dollar is waning –with the interbank market edging towards the 1:6 mark this week as the parallel market is believed to be closing in on 9.
Fuel Price Up Again
So this morning the 12th of June we woke up to the news of another fuel price hike. ZERA has approved the following fuel price increases, an RTGS$0.29 increment for petrol and an RTGS$0.18 increment for diesel. Effectively this places the price of petrol at RTGS$5.26 and diesel at RTGS$5.07 per litre. All this is against the backdrop of an ever-weakening RTGS dollar against the US dollar.
We All Know The Ripple Effects
Business services providers rely on fuel to execute some of their production operations and also their supply chain. This means the fuel price increase is passed down to the consumer through enacting price hikes of goods or services.
Interesting Insights On The USD Pricing
Now businesses have long resorted to pricing their goods or services using the parallel market rates. This means they are pricing things based on the value of the RTGS$: USD on the parallel market. That has led a scenario where USD prices for goods and services are much more affordable (provided you earn USD directly without first of all having to convert RTGS$ to USD). As an example, it means that a litre of diesel now costs approximately USD0.70 thus making it cheap to those who earn USD directly. Now, given the heightened need for business to obtain the much-needed foreign currency, they will obviously continue to implement US dollar pricing. This will guarantee them sales and will enable them to easily get their hands on foreign currency. People will be more inclined to buy in US dollars due to the incentive of the friendlier US dollar pricing.
The Predicament Businesses Now Find Themselves In
Businesses are now being forced (by circumstances) to increase prices. Recently I mentioned that the country is in a defacto-dollarization mode. This simply denotes that USD is more or less on the rise so much that it seems as if we are an economy that’s dollarizing. This, however, isn’t the actual scenario because technically we’re still using the multi-currency regime. I’ve already alluded to how USD pricing is actually cheaper than RTGS$ pricing. This somehow gives traction to proponents of dollarization. However, most people earn their incomes in RTGS$ and that means they don’t wield the buying power of the USD. So here’s what it means, it means businesses are forced to employ dual pricing (USD and RTGS$). The interesting dynamic is that the USD prices become cheaper and affordable whilst the RTGS$ equivalents are extremely expensive.
This puts RTGS$ earners in a fix because they now can’t afford most good and services. The situation has gotten so bad that basic commodities such as bread are now taken as non-essentials. Ultimately it becomes a gamble for the businesses to see whether people will buy using USDs or RTGS$. If it’s USDs then good for them but if it’s RTGS$ they then have to immediately source USD equivalents owing to the weakening of the RTGS$ against the USD. Simbisa Brands employed USD pricing dynamics and they reported after a while that it was bearing fruits in terms of more people using USD to buy. It’s probably case studies like these that are inspiring other business players to follow suit.
The factors that will continue pushing for USD pricing are still prevailing. For as long as the RTGS$ is still around (of which it’s weakening and weakening against the USD), then businesses will seriously consider USD pricing. The interbank market that had somehow been hoped to weaken and possibly annihilate the parallel market has failed to do so. So it’s with all this in mind that you should brace up for more USD pricing.