May inflation poses 2008 deja-vu

  • Month on month inflation rate in May was 15.13%
  • Zimbabwe’s inflation is the highest in Africa
  • Driving the inflation rate is a plummeting exchange rate

Zimbabwe’s unbridled inflation continues to sky-rocket on hitting 785.55% in May, the latest data released by ZIMSTAT reveals. Zimbabwe is currently grappling with hyperinflation barely 11 years after emerging from a similar record-breaking economic turmoil.

The month on month inflation rate in May 2020 was 15.13% shedding 2.51 percentage points on the April rate of 17.64%. The Consumer Price Index for the month ending May 2020 stood at 1.097.65 compared to 953.36 in April 2020 and 123.95 in May 2019.

Consequently, Zimbabwe’s inflation is the highest in Africa and the second highest in the world, behind Venezuela.

Driving the inflation rate is a tumbling exchange rate that has seen the local currency shed more than 90% of its value on the formal market. The formal market remains very much bridled by the relevant authorities at 1:25 to the greenback. This is in contradiction to the 1:80 exchange rate now prevailing on the parallel market.

Also feeding inflation is growth in the money supply. Equity Axis research unit– using data published by the RBZ reveals:  reports released for December 2019 showed Reserve Money closed 2019 at $8.9 billion, however, a new RBZ report changed the December figure to $10.33 billion, a higher base. The result is an understatement of Reserve Money growth in the first quarter of 2020.

With government’s ZWL18 billion stimulus package, this is expected to increase the money supply and further fuel the galloping inflation.

In a desperate attempt to deal with the nose-diving economic situation, the Financial Intelligence Unit (FIU) of the central bank declared all publications of parallel market rates illegal.

The Old Mutual Implied Rate, which is normally an indicator of the movement in the local currency is showing an exchange rate of 1:171 to the American dollar, raising a red flag on Zimbabwe’s currency woes.

Zimbabwe’s economic situation continues to worsen, exacerbated by the pandemic which saw a series of national lockdowns which remain in force to date- in a relaxed manner.

In response to CIVID19, the government announced the injection of ZWL18 billion into the system in a bid to cushion to businesses from the economic effects of the pandemic. The increase in money supply is inflationary, should the central bank continue printing money, this will only aggrandize the inflation.

With rising costs of living vis a vis lower salary increases, Zimbabweans exposure to poverty remains high. ZIMSTAT earlier this month reported, the Food Poverty Line for one person in April 2020 was $596.96 while that for an average household of five persons was $2,984.78.

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