Another month and another positive inflation report for the team at the RBZ as inflation data as published by Zimstat shows the downward trend continuing. Year on year inflation came down to 240.55% from 321.59% in February. Month on month inflation also declined from 3.45% in February to 2.26% in March. The RBZ is reaping the benefits of focusing on the right problem, the money supply which has mostly been stable.

A picture says a thousand words and the graph above really tell the inflation story for Zimbabweans. Yes, prices are still going up, a little over double what they were this time last year. Of course, this is a lot but that is almost 3 times slower than the rate of increase last year. If nothing else this slow down in price increases has given Zimbabweans room to breathe and plan.  Analyst expectations were for the year on year inflation to come in at 300%. However, the contractionary monetary policy that was released earlier in the year is taking effect.

Month on month inflation bolstered the trend with a significant drop from 3.45% to 2.26%. Analysts had forecast month on month inflation for March at 2.8%. The drop was in large part attributable to the food and non-alcoholic beverages inflation rate, which shed 1.90 percentage points on the February 2021 rate of 4.4 per cent to 2.52%. While the country expects a good food harvest the exposure to imports may lead to an increase in food prices given rising world food prices.

While there have been many questions in the past over CPI basket inflation as reported by ZimStat the current figures, or at least the change in them has been backed up by similar changes in PPP (purchasing power parity) inflation. This simply looks at how much you can buy with the same amount of currency today versus a date in the past. The latest (March 25th) figures from Professor Steve Hanke’s PPP based inflation shows a year on rate of 171%.

So far so good as the target set by the authorities of less than 10% year on year inflation by year-end starts looking achievable. Reduced economic activity with lockdowns and border closures has certainly contributed and it will be interesting to see how the trend plays out with a reopened economy – if and when that happens. The discipline the RBZ has shown in terms of containing money supply growth has been rewarded with modest depreciation in the local currency on both the parallel and official markets.