Inflation to close year above target
http://www.theindependent.co.zw/
Thursday, 20 October 2011 17:13
Reginald Sherekete
INFLATIONARY pressures took itstoll in the month of September 2011 with the
year on year figure peaking to 4,3% on the back of increases in prices in
both food and non alcoholic beverages and non food components of the
Consumer Price Index (CPI).
But with the current momentum, the annual inflation rate is expected to be
well above the targeted range of between 4%-5%.
The statistics released last week by Zimstat show that there has been a
general increase in household rates including water and electricity which
went up by 1,69% from the month of August 2011 and on a year-on- year basis
going up by 7,18%.
This was mainly attributable to tariffs hikes by local authorities and Zesa.
This resulted in the month-on- month inflation jumping by 0,8% in September
2011 from an average of 0,1% in the previous month.
In the mid-year budget statement, Finance minister Tendai Biti indicated
that a moderate inflation rate of between 4%-5% is targeted for 2011,
anchored on continued use of multiple currencies and increasing production
capacities of industries.
During the first half of 2011, year on year inflation declined from 3,5% to
2,9% in June 2011. But the trend reversed in the second half with inflation
jumping to 3,3% in July and peaking at 4,3% in September 2011. But the
inflation outcome is still in line with the Sadc and Comesa inflation
targets of single digit levels.
“In the outlook, indications are that inflation will remain below 5%,
assuming limited impact from exogenous shocks such as fuel prices and rand
appreciation as well as containment of domestic costs particularly the wage
bill,” said Biti
But in the frontline the battle has turned out different for Biti. The
reintroduction of import duty on some basic commodities like maize meal and
cooking oil has backfired for Biti with commodities prices increasing.
A report from the African Development Bank (ADB) last month indicated that
the price hikes, if not reversed, could militate against the achievement of
the year-end inflation target of 4%.
“There is need to address these price hikes given that the import duty
reintroduction was aimed at protecting local producers against cheap imports
in a bid to support local industry,” said ADB.
The rand has devalued from a rate of R6 against the US$ to current levels of
R8\US$.
Price increases in South Africa to maintain purchasing power parity will
only lead to imported inflation for Zimbabwe since it is a huge importer of
basic commodities from its neighbour.
The fuel and lubricants inflation has gone up on a year on year basis by
8,14% in the month of September. With the unrest in Libya, Arab nations
and the Middle East coupled with the global economic meltdown, prices of
oil will remain high.
Zimbabwe being a downstream economy will have to bear the full wrath of such
pressures with fuel prices currently hovering above US$1,40 per litre as
compared to prices of US$1,15 at the beginning of the year.
High fuel prices impact on the cost of production in many industries which
are now more dependent on the use of generators in the face of erratic power
supplies.
This cost is directly passed on to the consumer of the final product.
With demand for fuel expected to increase during the festive season,
analysts say this will put pressure on the prices. There is usually a
shortage of supply during this peak period and fuel stations usually take
advantage of the situation by increasing prices.
Biti’s inflation target of below 5% seems also to have been taken off route
following the 2011 civil servants remuneration reviews. The annualised
employment cost bill now amounts to US$2 billion.
Despite earlier salary reviews, civil servants may also push for an annual
bonus in the next month and if awarded, this would induce demand due to the
high spending power resulting in suppliers of products and services riding
on the wave by increasing prices.
If the current monthly inflation average of 0,45% since the beginning of the
year is maintained to year end, the annual inflation is projected to be
5,5%.
But given other factors expected to come at play during the last quarter,
which coincides with the festive hype, the inflation rate is projected to be
well above 6%.