The year-on-year inflation rate in Zimbabwe drastically declined in September from 77.20% in August to 18.40%. This marks one of the sharpest inflation declines in recent times and the third consecutive month of decline in inflation. However, this news is slightly dampened by a third consecutive month of increase in month-on-month inflation to a [positive 1%. The landscape looks good on the inflation front, but recent trouble in many large businesses points to larger economic problems.
After year-on-year inflation ballooned in June, the authorities stepped in to tighten the economy, resulting in a cooling down in the major monetary indicators. Year-on-year inflation dropping to 18.4% is a monumental achievement regardless of the controversial blended CPI basket measurement. This marks the lowest year-on-year inflation rate in 4 years. An important thing to note is that the overall direction of inflation, as expressed by the black trendline, is downward. While this is a one-year chart, we will see the same result if we apply a trendline to the 5-year chart. In simple terms, inflation is being managed better in Zimbabwe.
Month on month
The month-on-month inflation shows the contrary picture, which should be a cause for concern. As we have seen in the year-on-year inflation chart, things can quickly go from a marginal increase to an avalanche. Growing from a negative 6.2% to 1 % between August and September is not what we would like to see. The trendline in the chart shows that the general direction for month-on-month inflation is upward. In all fairness, the line is not steep, signaling that it is within the manageable range. This is positive.
Monetary Policy Committee meeting update
The Monetary Policy Committee met on the 27th of September and resolved to largely keep things the same with only minor changes. The statement released after the meeting stated that the RBZ would mobilize the transactional form of the Gold-Backed Digital Token known as the ZIG. Introducing new currency into the Zimbabwean should always be treated with caution. However, the digital nature of the currency means it may be easier to control. The RBZ promised an independent and transparent system to manage the ZIG tokens.
While month-on-month inflation is on the uptick, it remains within a manageable range. Year-on-year inflation is declining in the long run but remains punitive to Zimbabweans. If ZimStat’s blended CPI is mainly in US dollar prices, the 18.4% increase over the past 12 months is mainly in US dollar prices. There is still much work to be done.