Zimbabwe’s year on year inflation rate rose sharply to record a whopping 97.85%. In plain language, prices have effectively doubled over the last 12 months. This is a huge blow to the government who have many times stated that we are moving in the right direction. Finance Minister Professor Mthuli Ncube as recently as last week proclaimed that prices would start to decline in the 3rd quarter of the year.
Zimstat has pointed out that using the prior method the inflation rate would actually be 197.307%, a tripling in prices. Zimbabwe recently switched to the COICOP method which classifies consumption according to the purpose. This distinguishes between households, non-profit organizations serving households and general government expenditure. The classification is therefore meant to reflect the price change effect on the specific classifications more accurately.
The distinction as to whether or not we are experiencing hyperinflation is purely academic now. A 98% jump in prices over the last 12 months is certainly too much for Zimbabweans to bear. With salary increases rare. Where they have been noted they are somewhere between 10% and 30% and this paints a true picture of events. In real (US dollar) terms prices in Zimbabwe are on the decline. However, earnings are largely in RTGS dollars which continue to slide against the US dollar. IAS 29 the international accounting standard on hyperinflation accounting provides a benchmark of sorts for hyperinflation being a cumulative inflation rate of 100% in 3 years, we are evidently past that.
The RTGS dollar took another week of battering despite President Emmerson Mnangagwa hailing the currency as the strongest in Southern Africa. The official interbank market values the currency at 6 to the US dollar. The interbank market is not open to everyone though and its rate is not indicative or fully representative. The parallel market is believed to value the RTGS dollar at 9.4 to the US dollar on Friday. Regardless of the rate used, Zimbabweans have lost a lot of purchasing power over the year.
Food and beverage inflation was a key driver coming in at 126% with non-food inflation being measured at 84%. The month-on-month inflation picture clearly shows that things are getting worse. After a recent fuel increase and general price increases the trend is confirmed as upward and the rate of increase is clearly growing.
We’ve already mentioned the change of CPI method makes the reported inflation rate less comparable with past information on inflation as it understated current inflation but there are more and more dissenting voices with each inflation announcement. While a basket of commodities is used many argue that the basket doesn’t reflect the actual prices individuals are paying. Depending on who you listen to the true inflation rate is anywhere between 200 and 500 per cent.
While Finance Minister Professor Mthuli Ncube is able to wax lyrical about surpluses and fiscal consolidation inflation has proved a stubborn beast indeed. His recent utterances about prices falling in the third quarter of the year need to clearly be revisited.