Commercial Farmers' Union of Zimbabwe

Commercial Farmers' Union of Zimbabwe

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Inflation to close year above target

Inflation to close year above target

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 

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 

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 
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%.


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