HARARE – Zimbabwe’s year on year inflation could end the year at a much higher rate of 280 percent, contrary to government’s projections that it could drop to 10 percent by December, one of the southern African country’s leading advisory firms said on Wednesday.
Year on year inflation rose to almost 100 percent in May.
News of a worse inflation rate could dampen hopes of recovery in Zimbabwe, after authorities had consistently maintained they were on top of the situation, even as a raging black market currency rate continued to rake havoc on the markets.
Rampaging prices have also inflicted extensive damage of industries.
The value of the RTGS dollar hit the 10;1US dollar mark on Tuesday, compounding the dire situation that confronts both companies and consumers who have endured a deepening fuel and poor crisis in the past week.
Econometer said stability would continue to be undermined by volatilities on the exchange rate front, as well as subdued industrial output.
“As Econometer Global Capital, we see this figure rising to 280 per cent by year-end mainly driven by foreign exchange movements on the market and subdued output in the real sector,” the firm said in a note sent to shareholders.
“Movements on the foreign exchange market have over the last few months piled inflationary pressure on business whose pricing is now determined by the foreign-exchange market,” the research note said.
“Zimbabwe’s economy is currently facing serious headwinds which include rising inflation, high cost of living, fuel price hikes, high levels of unemployment and a depreciating local currency,” noted the report.
The Zimbabwe National Statistic Agency said on Monday year on year inflation in May stood at 97,85 per cent, from 75,86 percent in April.
Since dollarisation of the economy in 2009, Zimbabwe was plunged into a deflationary environment, in which prices of most products were actually falling.
This period came after the economy had gone through a phase of hyperinflation between the year 2000 and 2008, where inflation reached a record high of 500 billion percent in December 2008, according to the International Monetary Fund.
The major driver of inflation, during this period was excessive growth in money supply, which development buttressed the notion that “Inflation is always and everywhere a monetary phenomenon”.
On 1 October 2018, the RBZ foreign currency accounts into two categories, Nostro FCAs and RTGS FCAs.
This, however, brought a huge shock into the economy which destabilised prices.
Economic agents interpreted this signal by RBZ as an attempt to devalue their RTGS and bond notes balances, and an acceptance to the fact that bond notes and USD are not at par in value.
In order to realise value from their bond note balances, economic agents rushed to buy real goods resulting in panic buying.
Year on year inflation rose from 5,4 percent to 20,9 percent in September 2018 and October 2018, respectively, as a result of this policy adjustment.
This added more pressure on local suppliers to adjust their usual supply schedules.