Commercial Farmers' Union of Zimbabwe

Commercial Farmers' Union of Zimbabwe

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Inflation decreases

Inflation decreases

Friday, 22 June 2012 09:49

Staff Writer

INFLATION, as measured by the change in the Consumer Price Index (CPI) came 
in 0,01% lower than the April figure at 4,02% year on year. Month-on-month 
inflation was 0,07%, 12 bps lower than April’s 0,19%. Annual inflation in 
Zimbabwe as measured by ZimStats has trended downwards in 2012 from the 
December 2011 closing figure of 4,9% to the current 4,02%.

The downward trend in inflation can be explained by two major exogenous 
factors — crude oil prices and the South African rand exchange rate. The 
current weak global economy has resulted in a drop in crude oil prices which 
had exerted a lot of inflationary pressures on many oil importing economies 
at the beginning of the year.

The recent drop in oil prices has led to a decline in inflationary pressures 
in most economies and is part of the reason why inflation has only moved 
sideways locally.

Zimbabwe currently imports most of its basic commodities from South Africa 
and these imports constitute a great part of the 31,93% weighted food and 
non-alcoholic beverage segment of the CPI calculation. Because the imports 
are rand-based, the cost has been on a decline due to the weakening of the 
rand, leading to a sideways if not downward movement in the cost of most 
imported food and non-alcoholic beverages.

The decline in inflation was guarded by the huge increase in the 16,23% 
weighted housing, water, electricity, gas, and other fuels component which 
went up by 39 basis points month on month, while the annual increase came in 
at 13,94% and clothing and footwear costs went up by 20 bps month-on-month.

The year-on-year food and non alcoholic beverages stood at 4,61% whilst 
non-food inflation stood at 3,75%.

The month on month inflation rate in May 2012 was 0,07%, shedding 0,12 
percentage points on the April rate of 0,19%.

The month-on-month food and non alcoholic beverages inflation stood 
at -0.25% in May shedding 0.39 percentage points on the April rate of 0.14%.

The month-on-month non-food inflation was unchanged at 0,21%.

ZimStats is currently doing a Poverty, Income, Consumption, Expenditure 
Survey (PICES). The objective of the survey is to provide data on income 
distribution of the population; the consumption level of the population; 
private consumption; consumer Price Index (CPI) weights; living conditions 
of the population; production account of agriculture (Communal Lands, Large 
Scale commercial farms; small Scale commercial farms; resettlement areas, A1 
and A2 farms; and poverty. After the survey, the weights of the CPI will 
change in line with the international requirement of five years. At present 
2008 is the base year for the index.

Elsewhere on the continent, the Ghana Statistical Service (GSS), will rebase 
its CPI next year.

Economists argue that the existing methodology is outdated and that it does 
not fully represent current expenditure patterns. They also argue that some 
of the components in the basket are obsolete.

Housing, water electricity gas and other fuels take up a greater proportion 
of the average income, much more than food. However, food and non-alcoholic 
beverages, have a greater weight of 31,9 against 16,2 for housing water 
electricity gas and other fuels.

The changes to the weightings will make the basket accommodate current 

The present basket is made up of 68 commodities under 12 components. New 
weights will also be assigned to the commodities to reflect their relative 
importance in current household consumption. It’s most likely that transport 
and communication costs will see higher weightings as they now make up a 
bigger share of household spending than previously.

The CPI for the month stood at 101.63 compared to 101.56 in April and 97.71 
in May last year.

With the current CPI determination method in place and the Rand continuing 
to weaken, inflation is likely to remain subdued and the weak global 
economic growth is likely to ensure that oil prices remain depressed in the 
short to medium term resulting in weaker inflationary pressures in most oil 
importing countries like Zimbabwe. 


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