Zimbabwe’s year on year and month on month inflation is starting to do the right things according to Zimstat. Year on year inflation dropped to 659.4% from 761.02% to mark a second consecutive month of decline. Month on month inflation is also on a corresponding trajectory dropping to 3.53%. With a month on month inflation also in its second consecutive month of decline. The new mantra in Zimbabwe seems to be stability after the bringing to a halt the continuous upward movement of exchange rates on the parallel market and the emergence of a realistic market exchange rate thanks to the auction system.
The month on month inflation rate in September 2020 was 3.83% shedding 4.61 percentage points from the August 2020 rate of 8.44%. The CPI for the month ending September 2020 stood at 2205.24 compared to 2123.97 in August 2020 and 230.39 in September 2019. Meanwhile, the blended CPI inflation figures were -0.47% month on month and 376.29% year on year.
But it’s Zimstat
While there is good reason to disregard Zimstat inflation figures as they have posted results that do not fully reflect measures on the ground other indicators do indicate marked slow down in inflation. This is not equivalent to a reduction in prices but merely a slowing of the rate of increase. This largely the experience of Zimbabweans across the board. Other measures such as Steve Hanke’s high-frequency data and sound science-based methods measured Zimbabwe’s year on year inflation at 452%. The Hanke method looks at the purchasing power of the currency (exchange rate) as opposed to using a basket of goods as the Zimstat CPI method does.
The Reserve Bank of Zimbabwe has been very happy to attribute the stability in the exchange rate and hence reduction in inflation to the auction system. While the auction system has done a good job of controlling the pace and amount at which businesses can demand foreign currency their greatest work has been finally putting a lid on money supply growth. The closeness of the parallel market exchange rate and the official rate coupled with their concurrent stability shows that the current stability goes beyond any market discipline as we can rest assured there is no discipline in the parallel market.
But for how long?
Celebrations of stability as we have it are muted and drowned by lower murmurs questioning how long it will last. The question is valid. Previous money supply growth was propelled by cash strapped government borrowing and creating currency to fill the void. Without much clarity on the solution, the question will haunt until clearly answered. The upcoming agricultural season is another cause for concern though if our Finance Minister Professor Mthuli Ncube is to be believed this was catered for in the ZWL$18 billion stimulus package announced in the wake of Covid- 19. Perhaps it is the trauma of where we have been that reminds us not to celebrate too soon. Our year on year inflation was recorded at a lowly 175.66% for January 2020 and look at how that worked out.