The good news keeps rolling in, at least on the inflation front. Inflation marginally slowed down month on month (8.57% lower) and year on year (4.1% slower). The authorities are reaping the rewards of contractionary monetary policy. Year-on-year inflation is down to 268.8% from 280.4% in September, and month-on-month inflation is down to 3.2% from 3.5% in September as well. Finance Minister Mthuli Ncube will surely welcome this news as he gears to present the 2023 national budget.

Year on Year

After 7 straight months of increasing inflation year on year, the last two showed a decline in year-on-year inflation. The good news here is that we have a bigger decline than the previous month. Looking purely from a numbers perspective, this was expected because we are comparing to a higher base (12 months ago) from the previous month. However, it is also a testament to the slowdown in price increases. Prices are still increasing. Any improvement is welcome when you are in a bad situation like Zimbabwe is with inflation. To put it in context, we are paying a little over 2 and half times what we paid this time last year for goods and services.

Month on Month

The month-on-month picture was consistent with year on year on year picture. Though it shows a larger decline in relative terms (8.57% versus 4.1%), we can clearly see from the graph that it is a much smaller decline than the previous month. What can we glean from that? After contractionary measures were instituted and affected many parts of the economy, we seem to have arrived at a status quo. It would seem members of the economy have digested the measures and have found the new normal, as it were. Key drivers of month-on-month inflation were Communications (6.8%) and vegetable prices which rose 6.5%, as you would expect just before the rains come in.

Thanks to the contractionary monetary policy pursued through the Reserve Bank of Zimbabwe and improved fiscal discipline on the part of the treasury, we are seeing the same sort of results across the board. The official auction exchange rate has been hanging just under 630 to 1 for the last few weeks; this was unthinkable a few months ago as it galloped. As we are informed, the parallel market exchange rate is hanging somewhere in the low 700s. This means if we look at the interbank (willing buyer willing seller) rate, which became the official rate for pricing (and is allowed a 10% premium on the auction rate), it is just under 700. We are close to convergence. However, Reserve bank governor John Mangudya has gone on record before stating that parity was not the goal but reducing the premium between the two. Using high figures, the premium of the parallel market over the interbank market is now  7.1%, much lower than the historically comfortable 30% that Mangudya labelled acceptable.

Every rose has its thorns

While the slowing of inflation and exchange rate depreciation is to be celebrated, there are loud cries concerning the apparent scarcity of Zimbabwean dollars in the market. For the uninitiated, that is the definition of contractionary monetary policy. While the Zimbabwean dollar serves Zimbabweans poorly as a store of value or unit of account, it is desirable because of its divisibility. Especially in a country where we do not easily have access to American coins. These are the teething pains. However, the Zimbabwean dollar’s value has failed to take advantage of this scarcity; in other words, supply is not the biggest problem that the Zimbabwean dollar faced all along.

October is very much a wait-and-see month in Zimbabwean business circles as we anticipate the next year’s national budget. Over the years, the budgets have been lacklustre at best. If not in their announcement, then certainly in their results. There’s no reason why the finance minister cannot turn this around, though.