The Minister of Finance will certainly be pleased with the latest inflation statistics published by ZimStat.  Year on year inflation came in at the lowest level it has been in 15 months, 194.07%. Month on Month inflation equally hit 15-month lows amid continued discipline in terms of money supply growth from the Reserve Bank of Zimbabwe. The inflation picture continues to improve for Zimbabweans however the wage side of this coin may not quite have caught up yet. All in all slowing inflation is a welcome sign.

Year on year inflation has been on quite an amazing turnaround since peaking in July 2020 at 837.53%. Coming down to a quarter of this level in just a matter of 9 months is a feat. The level of 194.07% on the Consumer Price index (CPI) basis indicates improving fortunes for Zimbabweans. With the CPI basket sitting at 2803.57 compared to 953.36 in April 2020 we can perhaps better see the reality. Inflation has certainly slowed down but Zimbabweans are paying roughly 3 times as much as they did for the same lives they are living as they did a year ago. We wouldn’t rule out a Zimbabwean dollar wage increase of 200% in the same period but it certainly highly unlikely.

In 2019 when Finance Minister Professor Mthuili Ncube stopped the publication of year on year inflation figures he instructed Zimbabweans to look at the month on month inflation as the indicator of success. Currently, at a 15 month low of 1.58%, it is looking more and more like the sort of month on month inflation that is consistent with our goals for a single-digit year on year inflation. We are not quite there yet but given the choice between where we’ve been and where we are not many would choose the former. After the slight up-tick experienced towards the end of 2020 month on month inflation has started to come right. Analysts expected inflation to come in at 3%.

On the matter of wages, the civil service as represented by their joint negotiating forum continues to press for improved wages from their employer. There are differences in what is essentially being sought by the parties but it all amounts to a wage increase in one form or another. We understand that the government has offered an increase that does not meet the requirements of the civil service. This inflation data suggests that quite a hefty increase would be required to make sense to the civil service. There have also been mentions of a dollar-denominated salary to paid in the Zimbabwean dollar equivalent. This would have a large impact on inflation and the economy at large as wages are still one of the governments largest financial outflows.

The auction system has done well to curb the other influence on inflation, the exchange rate. More corporate players looking to the official auction market coupled with the contractionary monetary policy has relieved pressure on the parallel market rate leading to stability there too albeit above the official exchange rate. The downfall of the auction has been how many are excluded from it but the RBZ recently introduced open sales of foreign currency by Bureau De Changes supplied by the apex bank. The effects of this will show up soon. The biggest threat to the current stability we have is the return to normal activity levels as we look forward to vaccination and a hopeful end to the pandemic.

As all the pieces start falling into place for the Ministry of Finance and The Reserve bank of Zimbabwe the question is will they be able to stay the course as some things change and some go back to normal.