The Zimbabwe Statistics agency took a u-turn on the inflation figures reported for July 2020. After publishing post-2009 record high year on year inflation of 837.53% the agency said it had changed the way it calculates inflation and restated the July inflation to 485.27%. The month on month inflation which was the third-highest post-2009 at 35.53% was also restated to 16.65%. It seems the reaction has been to ignore Zimstat on this matter, including government offices such as the Reserve Bank.
According to Zimstat, the new method includes US dollar prices. If you’ve been following Zimbabwe’s inflation for at least a few years you will recall that the publishing of year on year inflation was halted until February 2020 from July 24th 2019 because prior-year prices included US dollar prices but the Zimbabwean dollar had become unit of account since February 2019. So, how do we calculate US dollar prices in our inflation basket? A year ago there were no US dollar prices. To get a reduction in inflation the agency would likely have to take US dollar prices and convert to Zimbabwean dollar prices via the auction foreign currency rate which was around the 70s in July. This results in artificially low Zimbabwean dollar prices. A little bit more on this later.
People still feel it
The reality for Zimbabweans is that 837.53% is lower than the inflation they experience. A look at the CPI basket tries to blend all items in the economy but seldom matches the use patterns of people. Compounding that by using a foreign currency exchange rate that people do not have access to is callous and disingenuous. The Reserve Bank of Zimbabwe has come up with a cocktail of measures to arrest the parallel market exchange rate. Many of the moves are desperate moonshots but hidden in between them was the arresting of money supply growth which was the biggest determinant of our inflationary path and not the exchange rate. Or to put it better, the exchange rate shared a correlation with inflation but was not the cause of inflation, money supply growth was the cause of both.
Which rate was used?
The inclusion of US dollar prices in the basket brings about rate disparity and confusion at best. It is well known that Zimbabwean prices are deflating in US dollars. Finance Minister Professor Mthuli Ncube claimed that as a victory for government efforts in 2019. You can easily see this from your regular “I’m selling chickens” adverts which have chickens currently priced at US$5 per bird down from as high as US$8 per bird. And that’s before we talk about the absence of US dollar pricing in the period in question. How can Zimstat suddenly calculate what it couldn’t just 12 months ago? Must be the extra time they have with the lockdown.
The readjusted prices aren’t realistic
The readjusted prices read like a cruel joke for the Zimbabwean whose purchasing power continues to take hit after hit. While those with the privilege debate whether the country has high, chronic or hyperinflation those without suffer the continuous torrent of prices increases. Lockdown and the shut down of the informal sector have made things worse as formal retailers lack competition which leaves consumers without an alternative.
We have long known that inflation figures were being painted in the best possible light. The predictions by the custodians of our economy that inflation will fall have not come when expected and they have sought to change the story. Numbers never lie but their interpretation is subjective.