Weak macro outlook to push inflation and humanitarian assistance upwards

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    Harare – A sharp macroeconomic decline is expected to drive high prices and humanitarian assistance needs, Famine Early Warning Systems Network (FEWS NET) latest forecasts shows.

    The increase of food and non-food prices which gained further momentum in October 2018 in response to new monetary and fiscal policies, the latest movements have been propelled by government’s decision to increase the price of fuel which triggered widespread protests by over 150%.

    Consequently, various sectors of the economy are feeling the heat coupled with high operating costs and access to foreign currency crucial for the importation of raw materials and servicing of foreign debts. The bakeries association have now hiked the price of bread by 70% to $2.50 for a standard loaf.

    Recently, the country’s largest beverage manufacturer, Delta, increased prices of its alcoholic drinks by up to 66%.

    In response to government increasing the prices of diesel and petrol, transport fees more than doubled up.

    The parallel market has also proved to be a thorn in every policy shift the government is implementing and its influence on the pricing of goods and commodities cannot be ignored.

    A spike in the parallel market exchange rates breeds panic, fear and despondency among the general populacy resulting in consumers resorting to hoarding as confidence in the local surrogacy currency and the RTGS accounts continue to erode.

    A below to normal rainfall which has raised a potential food security crisis bar high where poor households are accessing lower than normal agriculture labour opportunities and many are likely to harvest crops later than normal in May.

    “FEWS NET expects that an above-average number of people will be in Crisis (IPC Phase 3) or worse through the peak of the extended lean season in April.

    “Humanitarians should prepare for above-average assistance needs in 2019 and anticipate above-average food prices in areas receiving cash/voucher assistance,” reads part of the forecasts.

    By January, maize prizes have increased by a margin between 50-200% from September 2018, with one of the largest increases in Gweru which is operating more heavily in bond notes and reportedly has a low maize supply.

    The prices of sugar, wheat flour, and bread increased between 35 and 100% in key markets between the same months, while cooking oil prices increased over 300%.

    A shortage of basic commodities is visible in some markets and the supply of bread prior to the first season and the period after that remained subdued in some areas.

    Major upset was the shortage of fuel spanning for over a month, and the intervention strategy took by the government has further increased the cost of living and subsequently, driving a new chapter of price increases.

    According to FEWS NET forecasts, most food and non-food prices are expected to increase and remain well above average through at least March 2019 and will likely range between 50 and 100 percent above average.

    “Given the increased cost to suppliers in transporting their products and milling grains, the costs of basic commodities in rural areas have increased significantly and in some cases are considered prohibitive for poor households,” FEWS NET said.

    In October last year, the government announced monetary and fiscal policies which sought to combat the country’s persistent liquidity constraints.

    These policies include the separation of Nostro Foreign Currency Accounts from local Foreign Currency Accounts (RTGS), and the application of a two cent per dollar tax on mobile and electronic transactions, up from five cents per transaction.

    The separation of FCA from RTGS further pushed down the value of the RTGS and bond notes compared to that of the USD. This led to a spike in prices of food, fuel and other key commodities.

    – Equity Axis News

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