The latest inflation statistics for Zimbabwe covering the month of June 2020 showed some interesting results. Though inflation is still very high there was a decline in year on year inflation from 785.55% in May to 737.26% in June. Month on month inflation, however, showed a sharp increase from 15.13% in May to 31.66% in June. These are trying times for Zimbabweans as the official inflation statistics from Zimstat may not tell the full story.
Year on Year
Looking at the almost 50% reduction in the year on year inflation could give the feeling that maybe something is working after all. The blended Consumer Price Index for June 2020 stood at 557.19 compared to 100 in June 2019. Yes, lest we forget June 2019 was the month the Zimbabwean dollar was given sole legal tender status in Zimbabwe. It’s worth wondering how Zimstat is comparing current prices with those from that period given Finance Minister Professor Mthuli Ncube halted the publication of year on year inflation figures between then and February 2020 citing differences in monetary landscape, basically the same dual currency situation we have now.
June 2019 came with a huge jump in both the inflation rate and the parallel market exchange rate. The graph clearly shows that June 2019 inflation was almost double that of May 2019. This is important because it explains the decline in year on year inflation we have on paper even though our wallets cannot say there is a decline in inflation. We have a decline in the rate of increase of inflation compared to last year, not a decline in inflation itself.
Month on Month
The month on month inflation figures illustrate a continued trend in Zimstat inflation figures. One very high inflation month with two or three relatively low inflation months on either side. In fact, the high month is almost always double the previous month. Perhaps its pure coincidence or indicative of how pricing is done in Zimbabwe. Again the figures may not accurately represent the experiences of Zimbabweans.
Auction number 4
The fourth foreign currency auction was conducted yesterday, Tuesday the 14th and again produced a marginal depreciation in the Zimbabwean dollar of 4.4% from 65.88 to 68.88. The signs we have become accustomed to in the auction system continued to be a feature. This week’s auction had higher-placed lowest bids and lower placed highest bids signalling a smaller spread and hopefully a precursor to market convergence. Again the market failed to supply the entire demand with 14.6% (14.3% the previous week) of bids going unmatched. There is still a little confusion about exactly what goes on in these auctions and it wouldn’t be a bad time for the RBZ to start giving better information such as what qualifies a bid to be dismissed.
The distribution of the money went mostly to raw materials and equipment again, encouraging signs. The distribution is also starting to even out compared to the early days. The shortcomings of the auction remain, at least for now. The effect it will have on pricing is still unclear because the rate it produces is not effective. More importantly, many are completely excluded from the auction process but have a say in pricing. Finally, we cannot talk about stability of the rate until all demand is matched with supply.