Fresh round of price blitz as Mthuli Ncube prepares mid-term budget

HARARE- Zimbabwe’s economy is experiencing a series of price shocks as untamed market liberalisation takes effect. Prices of goods and service have been on a spiral since October 2018, when the process to disband the multi-currency began.

In subsequent months, rationale consumers have reacted to latest policy measures and the direction prices has taken has remained one sided, that is northwards.

Policy makers are really stunned at the moment despite posturing confidence as most of their predictions have been proved wrong.

A survey done by Equity Axis on the 29th of July across a number of mainstream retail shops shows the prices of most goods have moved by between 20% and 45% over the last 2 weeks alone.

 Basics such as meat, eggs, sugar and vegetables have all gone up over the period, while basics such as bread are in short supply. Food carries the most weight on the CPI basket at 30.3%. The CPI is a calculation of inflation and officially computed ZIMSTAT.

The latest round of price increases comes on the heels of fuel price increases a week ago. The average cost of fuel increased by 23% barely 2 weeks after another increase, early in July.

Although fuel carries less weight on the CPI, the fact that it is a key factor of production means its ripple effect is severe. A minor movement in the price of fuel changes the operating cost structure of most industries and this consequently feeds to price increases as players pass on the cost to the consumer.

At the time the government reintroduced the Zimdollar in June, the initial reaction was that of a retreat in the parallel exchange rate as players panicked over the new measure. The decline was further buttressed by the expectation of improved flows on the interbank, which would naturally help stabilise the exchange rate.

The interbank rate initially realised improved flows and a quickening of the rate by over 100%, but the buying pressure has not yet subsided. RBZ reports that flows transacted to date are now above $700 million. This favourable stastic has not helped either as demand remains high. government is accused of placing its hand in the cookie jar to support some hanging subsidies and influence the market, thus deterring normal market forces and equilibration.

While the mechanics of the market remain elusive to the ordinary man, the implication of a morbid interbank have been visibly that of pushing the exchange rate further southwards.

Given the relaxation of SI122 in 2018, which banned importation of several goods in a bid to protect local industry, the economy has returned to a highly import dependant one, thus suscepting it to vagaries of the exchange rate.

The exchange rate is however a function of macroeconomic fundamentals which has been a subject of debate over a very long time as Zimbabwe pursued command policies which veiled the true state of the economy.

The unravelling situation since the promulgation of S1142 of 2019, has exposed the fundamental weaknesses prevalent in the economy.

 The economy is proving not as strong as the government desperately wants the people to believe, it is now beyond confidence deficit but structurally defunct. Fundamentally the economy remains weak with low forex, weak demand, rising inflation and weakening production.

EQUITY AXIS NEWS

Respect Gwenzi

Respect is the Lead Analyst and Managing Director at Equity Axis. He has 8 years experience in respective fields of finance and media. Particular areas of expertise include Asset Management, Stockbroking and Financial Media. Respect is on a mission to change the course of Financial Media in Africa through digitalization

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