After giving the financial authorities at the very least reason to celebrate over the last 12 months year-on-year inflation registered a slight uptick in September 2021 to 51.55% as compared to 50.24% in August. Small margins of course but there are a few reasons why this should’ve been expected. Month on month inflation also registered an increase from August’s 4.18% to 4.73% (+0.55%) which was however slower than the prior month increment of 1.58 %.
Year on year inflation has been on a rapid decline. It was a little over 12 months ago that the inflation rate had surpassed 800% and was in all honesty on the rampage. Cutting that inflation rate down to 1/16th of its high is no small task and the RBZ and Ministry of Finance should both be proud of the work they have done in that regard, especially through instilling fiscal discipline. So with the inflation rate trending upwards for only the third time since July 2020 should we be worried at all? Does this represent the wheels coming off the inflation reduction bandwagon?
Not quite yet but what we are experiencing now was to be expected. Inflation was at its worst just over 2 years ago, July 2020 to be precise. Since then prices have slowed down save for January 2021 and September 2021. The observant may have noticed that the months corresponding with our two uptick months, January 2020 for January 2020 and September 2020 for September 2021 have some important information for us. January 2020 has what looks like an anomalous decline in inflation at a time when no other fundamental supported such a figure. Ultimately the low inflation rate for January 2020 means when January 2021 Consumer Price Index was compared to January 2020 Consumer Price Index, this is how year on year CPI inflation is calculated, we would get an unfavourable result, as we did. Again if we look at the chart we see that decline in the inflation rate started in August 2020 and September 2020 registered a decline of over 100% (101.62% to be exact) the biggest drop we have had to compare to so far. And there is only one bigger drop, the month right after which we will compare next month to. So the wheels are not falling off the wagon just yet, we are simply comparing to months where the nation was doing well rather than months we were doing poorly. That is from an inflation perspective at least, other factors such as the parallel market exchange rate which is still the reference point for business pricing suggest things are not going so well in the nation.
The month on month inflation picture gives a more sober reading but also confirms that we are pretty continuing the pattern that has been established. A slower increase in the inflation rate month on month suggests that price increments were somewhat contained but we see again the emergence of our regular pattern of 1 month down and two months up. We had departed from it earlier in the year. The big question is now what October will bring for us.
The good work has been done and the monetary authorities now find themself with a very difficult task. From here on out on a year on year basis they will be comparing CPI figures to some of the better months Zimbabwe has seen in the last 3 years. With the pressure the parallel market is exerting, the questions generated in the auction system before deciding to bail it out with money from SDR allocations and ambitious targets in many programmes the RBZ and Ministry of Finance will surely be tested more than they have been thus far.
