In the past two months Zimbabweans have witnessed the shooting up of prices of all goods in the market. This sudden increase in prices has reminded many of the 2008 era with was dogged by shortage of commodities and very high prices. This has also resulted in the increase of the cost of living in Zimbabwe. As recent survey conducted by the Consumer Council of Zimbabwe (CCZ) showed that the cost of living for low-income earner family of six increased from $604.54 at the end of September 2018 to $666.93 by end of October 2018, an increase of $62.39. This increase can be attributed to the rise in the prices of vital commodities, price speculation, the sudden increase in the demand of goods, cash shortages and the 2 percent tax increase on electronic transactions.
This current situation has left many wondering what action the government is taking to deal with this situation. Behind closed doors, the government and the mother of all banks, the Reserve Bank of Zimbabwe, have been holding meetings with the various boards and federations that control key sectors of the economy. The aim of these meetings has been to try and ensure that the supply of key commodities like fuel and wheat is not disrupted and that the prices of these commodities are kept in check. However in doing so, the government faces the risk of controlling prices in the market. In a normal market, the prices of all goods and services should be determined by the forces of demand and supply.
In a recent meeting held between the grain millers and manufacturers of packaging materials addressing the issue of the sharp increase in the cost of packaging material, the government stated that it would not impose any price controls on the market, but will simply play a mediation role between stakeholders. It made it clear that it had no intention of setting any price floors or ceilings. The government would only intervene to ensure that the prices of basic and crucial goods remained affordable. This position that the government has taken is a positive on as the control of prices has negative effects on the economy.
Price controls by the government (especially if the set price is below the new market equilibrium) may distort the adequate supply of products in the market as suppliers may not willing or genuinely may not be able to meet demand at the given imposed price. Those that can supply will continue to supply however, they will do so in a new market known as the ‘black market’ as they try and maximize their profits. In this market, the product usually goes to the highest bidder and in Zimbabwe the highest bidder is the one with foreign currency in his or her hand. Those that continue to trade above board may put measures to ensure that there is enough for every consumer. This has seen the emergence of quantity limits in shops were customers are only allowed limited quantities of certain products like cooking oil.
Some shops have also gone on to boost their sales buy setting minimum total purchase limits should customers desire to have access to other products that are in short supply eg to buy cooking oil you should have bought other goods worth at least $15. Hence as the government tries to protect consumers by regulating prices, it may in fact worsen the situation. Price controls also scare investors as they believe the market should determine prices. The government should continue to play ‘referee’ in the market and try to ensure that the various stakeholders negotiate well with each other so that products are supplied at the right price and in the right quantities. It should also put in place policies and instruments that make it easy for suppliers to make available good on the market at the minimal cost possible. This is the crucial role that the government has to play to ensure that consumers are not prejudiced.
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