Zimbabwe’s battle with inflation continues with ZimStat reporting mixed fortunes for December 2020. The year on year inflation as based on the CPI basket decreased from 401.66% to 348.59%. Meanwhile, month on month inflation increased from 3.15% to 4.22%. It had been expected to come in at around 2.8%. The good news comes at a time when Zimbabweans are anxious over utterances of the pending introduction of higher denomination banknotes as they anticipate this to have an inflationary impact.
Year on year on slowing slower
The slow down in year on year inflation has been welcome though it must be said that it is still very high. What is encouraging is the decline in price change levels over 12 months. The graph shows that while inflation has been consistently slowing since its peak in July 2020 it is slowing down at a slower rate. This is indicative of how close our current stability is to the price levels that existed 12 months ago. As we move closer to August 2021 we should see the decline slow down gradually. Assuming that money supply growth is contained as it has been in previous months.
Month on the month at it again
Month on month inflation continued to show its strange behaviour with months of decline followed by a month of increment. For December 2020 the trend reversal was very small and should not be of much concern. In the past, the bounce-back has been much higher. The continued and largely preferred use of the US Dollar in transacting has also contributed to the relative stability in prices. With a month on month inflation having peaked just under 40% per month Zimbabweans will gladly take the current levels with 4 months under 5% and 5 consecutive months in single digits.
We’ve heard this before
What is worrying at present for Zimbabweans is the threat that the introduction of Higher denomination Bank notes represents. While the gentlemen at the Reserve Bank will assure us that the banknotes will be introduced in a manner that will not cause inflation we need not look very far to see how these assurances hold up. The introduction of the current highest denomination Zimbabwean dollar notes, the 10 and 20 dollar notes, had the same promises back in May 2020 and ultimately resulted in peaks for both inflation and parallel market in the following months.
What is slightly concerning is that stability has become an end goal of sorts. Granted, we are in the midst of a global pandemic that has dented if not halted the plans of many for 2020 and is steadily on its way to do so for 2021 plans. However, it seems there is no direction for after stability. What we would like to see are more efforts to address some of the issues that make Zimbabwean life difficult. While cash shortages are one of these things it is hard to believe the RBZ is serious about sorting them out.
The forecasts for this year range from overly confident single-digit year on year inflation to the more Conservative and sceptical low double digits. This all depends on how the Apex bank proceeds with money supply growth management.