With a new earlier reporting date comes the end of a trend for the Zimbabwe inflation data as published by Zimstat. Year on year inflation broke a 5-month streak of reduction in inflation and climbed by 14.04% to 362.63%. Month on month inflation also increased from 4.22% to 5.43%. The news has somewhat caught Zimbabweans unaware as the nation was starting to get used to the gradual decline in inflation towards stability.
You’d have to have to go all the way back to July 2020 to recall the last time Zimstat data showed an increase in the year on year inflation rate. Although that was 100% from June 2020 many will already tell you they know what comes next. The last 5 months have shown a steady decline in the inflation rate that was attributed to the introduction of an official foreign currency auction system on the 23rd of June and a clear reduction in money supply growth which saw similar exchange rate stability being achieved on the parallel market. The increase is relatively small at just 14% and alarm bells should not be ringing just yet. The increase is smaller than any decline we have seen in the past few months and the nation is under lockdown which affects the supply side of many goods and services.
As regular readers will have noted with our monthly inflation updates month on month inflation is a bit more erratic in its nature. The fact that the increment is small and the overall month on month stays under double digits could be the silver lining on this cloud. We have noted previously that month on month inflation generally shows a trend of two months of increment followed by two months of decline. We have currently entered the second month of increment following a single month of decline. The fact that month on month inflation has remained under double digits, something we last saw in July 2020 will give room for doubt as to whether we are going back to hyperinflation.
Why is this happening?
We can surmise a few reasons why this is happening. I believe 3 are important while you can find many other reasons that may not be so important. Firstly the lockdown. Lockdown terribly affects the ability of people to work and move and this equally affects many supply chains so pricing in goods is more than likely to increase. Secondly, there is the expectation in the market of inflation and this tends to become a self-fulfilling prophecy. The talk of the introduction of higher denomination notes, a bad omen in the past, and the revelation by Eddie Cross that the government was printing money regularly fed a rumour mill that needed little encouragement. While the Auction has shown a very small increment in the exchange rate in the new year (now 82.6756) the parallel market has shown a significant increase depending on sources.
While the current increment can be dismissed as an anomaly it doesn’t take much for a trend to form and before you know it you are two years into arguments about whether it is hyperinflation or not. Shortly, we will look to updates from the RBZ on the money supply position and whether they have any plans to contain the increase or if they will dismiss as a one-off. As things stand analysts expect a decline in both month on month and year on year inflation in February.