In the February inflation update, we commented there was a trend of increasing inflation since the August 2021 low of 50.24%. What we believed to be the true highlight of that inflation update was that inflation, on a year on year basis was increasing at an increasing rate. The March update courtesy of ZimStat revealed just as much with Year on year inflation gaining 6.6% to come in at 72.7% for March 2022. This does not augur well for the future if the past is anything to go by. Month on Month inflation provided what may be a silver lining to the cloud shedding 0.7% percent and was reported at 6.3%.
Year on Year
The year on year picture confirms the trend we observed in the previous month. 5 of the last 7 months have seen increases in inflation with January 2022 providing a minor basis point decline. The reality is setting in. After months of rapid decline, inflation is firmly on the up. Having set a target for a year-end inflation figure of between 25-35% things are certainly trending in the wrong direction for the RBZ. Money supply growth has proven difficult for the bank to bring firmly under control. On the prices front, the parallel market rate has slowed down but steadily creeps up maintaining the exorbitant premium on the official auction-rate which has seen some devaluation during the year. The graph below shows the change in the inflation rate over the last 12 months.
Year on Year
Month on month
The month on month inflation picture gave mixed news. Firstly month on month inflation dropped slightly from its 12 month high of 7% recorded in February. The good news stops there however as the target the RBZ set was to keep month on month inflation Below 4% in the first quarter of 2022. We are far from this and this is what threatens the target for the year-end as well. The impact of the price of fuel on this should not be forgotten.
The chart above shows Zimbabwe’s year on the year inflation rate for the last 5 years. It illustrates why we should pay close attention to the fact that inflation is increasing at an increasing rate. We can see the incline started towards the tail end of 2018 grew into an alarmingly steep ascent within just 2 years. The growth there approximates exponential growth. The slightly calming realisation is the 2nd half of the picture where inflation was relatively contained. That little ascent we have at the end of the timeline looks a lot like the start of the first ascent though flatter. The authorities have a lot of work to do to get things right but it is perhaps in their favour that they have done it before.