The Consumer Price Index for Zimbabwean goods and services increased in the month of February. The increase was fortunately not as sharp as many predicted but the worst may yet be to come. Maintaining the position of the second highest inflation rate in the world and the highest in Africa inflation weighed in at 59.39% for the month of February. We have a long way to go to reach Venezuela levels.
The key drivers of inflation growth were food inflation which increased almost 10% as compared to the previous month. Housing utilities only increased by 3 CPI points to reach 114. The month on month inflation figure for February stood at 1.67% after hitting 10.75% the previous month. Finance minister Mthuli Ncube continues his forecast of a reduction in inflation and I’m quite certain he and the team will be happy to point this out.
The ushering in of the Monetary policy statement by Reserve Bank Governor John Mangudya introduced the RTGS dollar which was a formalization of the existing bond notes, coins and electronic balances. This was followed by an interbank foreign currency market which devalued the RTGS dollars when the market started to deal in currency. Business owners are in the process of readjusting prices to the new reality.
While informal businesses had made the adjustment long before the MPS with parallel market (the reliable foreign currency source) valuing the RTGS dollars at 1:4.15 , formal businesses have more rigid processes and must apply for price increases. Mobile operators, bread bakers and if you believe the latest rumour that the ZETDC vehemently denied electricity tariffs too are set to increase. Vehement denials by government institutions have served as confirmation to rumors of the fuel price increase and the introduction of the new currency.
These readjustments threaten an already critical situation. Employees have been hit with double digit inflation figures consistently since October 2018 with very little change in remuneration. The latest inflation figures only make it worse. Zimbabweans are already faced with high prices but price readjustments in critical factors like power would mean further readjustments and could trigger contagion through an inflationary circle.
While the latest figures do bring a little comfort to Zimbabweans it is by no means time to celebrate. The threat of price increases in key commodities and utilities hangs over people’s heads. It should be noted that the accounting effect of the monetary policy statement announced by the RBZ last month certainly played a part in the measures of inflation showing reduction.