Speaking to Zimbabweans a few people have received rude shocks when they have picked up an item on the store shelf, taken it to the till and realized only at the till that the price of the item is higher than advertised. As the inflation picture gets worse and worse more of these occurrences will be experienced by Zimbabweans. For those in business, there are things to consider when it comes to this practice. But first, let’s understand the background.
The obvious explanation is the constant changing of prices. Real Value Accounting or US dollar pegging for prices is now the standard practice for many businesses. And whether the rate used is the interbank rate or the parallel market rate both rates are moving daily. The result is what is referred to as menu costs; the costs of continuously having to update prices. This a marked symptom of hyperinflation.
Are we in hyperinflation?
Hyperinflation is defined as a situation in which prices are rising extremely fast: Economists generally reserve the term “hyperinflation” for cases when the monthly inflation rate reaches over 50 per cent. While Zimbabwe’s month on month inflation rate was recorded at 5.5% in May it is definitely showing an upward trend which is worrying. The 50% mark is purely academic though and the reality on the street is that it may not be hyperinflation but it feels a lot like it.
With the US dollar being frowned upon and transacting in it problematic for those in business, RTGS dollar pricing remains the norm. Businesses that transact in US dollars are mandated to pay tax in is dollars and this is a doubly unattractive proposition. Also, the reference rate for the US dollar presents problems as the official interbank rate in addition to being unfavourable to those selling foreign currency is not widely accessible and the market is incapable of supplying the current demand on it.
Law of advertising prices
A little known but binding law in Zimbabwe is that of the invitation to treat. It governs rules around advertising of prices and allows for advertising of prices that the seller is free to accept or decline at his own discretion when a prospect approaches them to pay that price. In simple language, advertising a price is in not an offer, it is an invitation to make offers. This does not apply however where the item is on a shop shelf and people are free to pick it up and take it to a till. Again this knowledge is academic as the best you can get is the honouring the advertised price. In the current state of things that is likely the least of your concerns.
Zimbabweans are going through a lot. Stagnant salaries in the face of rampant inflation, critical resource shortages and complicated lives. Where others would turn to retail therapy customers now add retail to one of their aggravations. While the academics wait for the inflation rate to reach 50% month on month to call it hyperinflation the important question is what happens when we get there?