The writing is on the wall; inflation to keep rising!

Since the beginning of October 2018, prices of many goods including basic commodities have been rising significantly. Year on year inflation has climbed from 31.01% in November 2018 to 42.09% in December 2018 then to 56.9% in January 2019. The Consumer Price Index (CPI) has been rising from 118.7 in October 2018, 141.4 in December 2018 and 156.6 in January 2019. Let’s face it, our prices continue to go up, left, right and centre. And, if this trajectory continues unabated, inflation is set to keep on rising.

Trading economics forecast for inflation, expected to be announced next week is 62%. They have been very close to the mark slightly under-forecasting in recent times. So we shouldn’t expect them to be too far off the mark.

Bread

Bread is the latest commodity whose price has shot up. After much debate and government persuasion, Bakers Inn have decided that it is time to hike prices. This tells us a story. Perhaps government can no longer convince them to keep their prices low. Effective 6^th March 2019, a loaf of bread costs RTGS $2.70 up from about RTGS $1.80. Bread is almost a staple food, a permanent part of every family’s breakfast. As such, the country requires about 400 000 tonnes of wheat annually to meet demand but farmers are only producing half of that. The rest has to be imported and this needs foreign currency, something which this we lack as a country.

By raising prices, bakers are trying to cushion themselves by raising enough money to buy the necessary foreign currency. Just last month, another leading baker, Lobels, shut down its Kwekwe plant citing viability challenges. Many breathed a sigh of relief towards the end of last month when government revealed that they were engaging a baker who could produce a standard loaf of bread using 100% local ingredients. Whether this baker has the capacity to produce enough to feed the whole nations is still not clear. To date, no further developments have been communicated in this regard yet. If true, this may eliminate the need to import wheat thereby reducing the overall cost of producing bread. However, for now, the price has surely gone up.

Mobile phone operators

As if not to be left out, mobile phone operators, Econet, Telecel and Netone are lobbying the Postal and Telecommunications Regulatory Authority of Zimbabwe (POTRAZ) to allow them to hike their tariffs. This is largely a response to the Monetary Policy Statement (MPS) which ended the 1:1 rate between the Bond Note and the US Dollar. Mobile phone operators need foreign currency to import key parts and equipment to support their infrastructure as well as for repairs and maintenance. Over time, equipment succumbs to wear and tear and become obsolete and without repair and maintenance, things tend to get worse.

As soon as foreign currency started costing mobile phone operators more after the MPS, it became logical to seek authority to raise tariffs. If they are allowed to hike the tariffs, this will affect many businesses who may end up passing the cost onto consumers. Communication is an integral part of any business. But there is a dilemma to this. If government stops them from hiking the tariffs, we may soon experience slow connectivity and other issues as infrastructure gets old.

Fuel

In the past few days, speculation that fuel prices would be hiked gathered momentum. Again, this is an effect of the MPS. Duty on fuel has effectively increased by 250% because the official exchange rate is around 1:2.5. Fuel shortages currently persist all over the country. In fact, so dire is the situation that government has decided to allow big companies to import their own fuel. Fuel price hikes are known to have a domino effect on prices of almost everything else. While government continues to refute claims that fuel price increases are coming, events on the ground only serve to give credence to the rumour. Some service stations are suspected to be withholding fuel in anticipation of price increases. If fuel finally goes up, inflation will go up. In January, fuel price hikes triggered massive transport fare hikes and despite government efforts to minimise the effects by introducing rebates to certain sectors, prices still went up.

Government response

As the country faces increasing inflation month on month and year on year, one cannot ignore government’s response to all of this. It seems like all government efforts are on an ad hoc basis, more like a firefighting exercise. It is well documented that as official statistics showed a rise in inflation, Finance and Economic Development Minister Professor Mthuli Ncube initially dismissed the figures as being inaccurate. It was only during the MPS that government, through the RBZ Governor John Mangudya only started to accept that the challenge is real.

Even then, government’s response seems sluggish at most times. It is often overtaken by events. The bottom line is that whether we agree on the exact inflation figures or not, that prices of basic goods and services are going up often is not disputable. This is what government needs to deal with decisively. Without holistic interventions that cover all sectors of the economy, we may continue to sing the blues.

There are many other prices that may be hiked in the coming days and months. Inflation looks like it is here to stay unless more strategic and effective measures are put in place. Unfortunately, none are on the table yet. Price controls and basic commodity subsidies (Bacossi) have failed to solve the issue before. We wait to see what’s next.