Further good news dominated the publication of inflation statistics for June 2021 by ZimStat. Year on year inflation dropped to 106.64%. Month on month inflation however showed a slight increase to 3.88%. The overall picture is positive given recent history but it does not bode well for the single-digit year on year inflation target by the end of 2021 that was set by Finance minister Professor Mthuli Ncube.
Year on year inflation 106.64%
Our year on year inflation certainly looks good, especially given where we are coming from. Last year, Zimbabwe recorded its highest year on year inflation figure since dollarisation in 2009, 837.53%. You would have to go back to July 2019 to see a month with lower inflation (save that January 2020 figure which looks more and more like an anomaly) than currently recorded. In that regard, things are certainly going to plan for the ministry of finance. In simple terms, you can expect to find things cost twice as much now as they did this time last year. Last month we noted that the same comparison would give you a multiple of three on previous year prices.
Hanke says 62%
Professor Steve Hanke’s Purchasing Power Parity based model calculates Zimbabwe’s year on year inflation to be 62% for June 2021. This caused quite a stir as people seem somewhat confused. The belief has long been that ZimStat figures are difficult to trust, so when one person who holds themself out as having figures we should trust provides data that presents a better picture than ZimStat, understandably, people may be confused. Professor Hanke’s method is the more accurate because it looks at the difference in what money can buy, rather than the difference in a basket of goods (CPI). CPI is a more on the ground approach but they simply cannot include every good and service in the market and therefore distortions are more prevalent here.
Month on month 3.88%
Month on inflation registered an increment of 1.34% from the previous month to 3.88% this month. This sounds small but as the graph below will show you there may be cause for concern. Firstly, this uptick confirms that interesting, if not menacing, trend on inflation goes down for two months then up for three or something like that. Secondly, inflation was only higher in January 2021 on a month on month basis this year. These increments in month on month inflation do not form part of the plan.
The minister of finances lofty target of single-digit inflation by year-end is looking more and more unrealistic. Year on year inflation has certainly slowed but not fast enough. This is even more evident if you call back to last year and realise that our stability started around this time last year and has held. The room for improvement has shrunk. Our month on month figures thought to be the more important by the Finance minister himself do not support the goal of single-digit year on year inflation either.
Credit must be given where credit is due. While the target set looks unreachable now the fact remains that a lot of good work has been done in a short space of time. Cutting inflation down from 837.53% to 106.64% in 12 months is certainly commendable.