After 8 months of silence, ZimStats and the Reserve Bank of Zimbabwe have finally published year on year inflation statistics as promised. Unfortunately it highly likely that team at the government offices will not be happy with the figures for February 2020 as the year on year measure was reported at 540% while month on month inflation rebounded from a low 2.23% for January to 13.52%. Disappointing because the low month on month figure for January was used as evidence of bringing inflation under control. With currency having slipped in value from 23.9 to 41 for the US dollar between January inflation recording and now the future is not looking good.
Due to the degree to which the nation relies on imports the foreign currency exchange rate is extremely indicative of pricing. While there is a government-backed interbank official market the parallel market has a greater supply of foreign currency and is relied upon by businesses and individuals to supply foreign currency. The managed float interbank market has kept the official exchange rate low and as a result items such as fuel have not recorded great price movements, officially. These items are now largely accessible in their own parallel markets.
Professor Steve Hanke and his studies however strongly disagree and in fact place the inflation rate for Zimbabwe as measured by year on year purchasing power parity at 1062%, just over double the rate the government reported. That the government has a track record reporting massaged figures in the past doesn’t help them in this regard. In the month of January, the year on year inflation rate was implied at 551% and it is very hard to believe that inflation dropped 10%. The measurement of the basket has always been the issue as I highlighted with the fuel situation.
What is clear is that the inflation picture will certainly get worse before it gets better. After announcing a raft of measures to attempt to control the exchange rates the road ahead may not be smooth for Mangudya and Ncube. While they placed great attention on the systems around money and the foreign currency market little attention was placed on fundamental issues such as the money supply growth.