ED’s rebate under threat as manufacturers hike prices

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    2 weeks after the 250% fuel price hike, Zimbabwe manufacturers have begun to price in the increased costs emanating from the hike as well as other attendant spiking costs.

    Bakers who qualify as manufacturers under the government rebate, dangled to producers in an attempt to stop them from hiking price, have now increased the price of bread by over 70% to a market average of $2.50 a loaf.

    Bread and cereals are the single most weighty commodities on Zimbabwe CPI basket at 10.9% falling under food inflation.

    An increase in the price of bread would have a far more significant impact on the net inflation outcome compared to the rise in price of any other products. In recent months inflation has gained by huge margins bringing back fears of yesteryear hyperinflation era.

    Although official figures show that inflation rose by 42% in December, isolated estimates of most commodities’ price gains show at least a 100% increase in price. Delta which is the largest player in the beverages market recently increased prices of its alcoholic drinks by up to 66%.

    After instituting a fuel price hike, government had hoped that inflation would remain constant as 4 of the economy’s key sector were offered a rebate which would keep their fuel costs at par to before fuel price increase levels.

    These sectors are mining, agriculture, manufacturing and transportation. In a statement while announcing the price hike, Zimbabwe’s President highlighted that he did not expect another round of price blitz following the one that preceded the October 1 monetary policy which again introduced some market moving policy measures both monetary and fiscal.

    However the centre remains on a sinking path with prices further gravitating southwards in line with the parallel exchange rate. The parallel exchange rate is in part influenced by a slowing down economy, which of late has experienced production slumps owing to raw materials shortages and increased costs. Other sectors such as mining have strategically constrained production to avoid further value loss using the 1:1 exchange rate.

    The emerging fresh round of price blitz is an indication of a failed monetary regime which will not be contained by an “improving fiscus position” as posited by the government.

    The minister of finance believes a correction of the fiscus will gradually rebalance the monetary side of the economy. The rate of fiscus rebalancing is however not strong enough to encourage more exports and a sharp slowdown in spend.

    Factors such as slow-down in money supply growth and increased forex receipts are essential in stabilizing the currency.

    The rebate model is likely to be shunned by more manufacturers as it does not highlight clear timelines of rebate redemption.

    A 6 months waiting period for a rebate claim would render the rebate less valuable given the rising inflation.

    The rebate offer also fails to address the impact of gains in other costs not related to fuel. If one manufacturer is prohibited from increasing the price of produce so as to access cheaper fuel while other costs are increasing in line with inflation, the net will be a loss position or sharp margin loss on products sold.

    For some manufacturers it would be a better-off bet to deal with variables within their control such as managing their product’s price at the expense of rebated fuel and to price in such fuel price movements in line with inflation.

    – Equity Axis News

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