Exchange rate stability drives down Zim Inflation

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  • YoY inflation dropped 101.62 percentage points
  • Second drop in inflation since July
  • Exchange rate stable at USD1: ZWL 81

Harare – The retail inflation, measured by Consumer Price Index (CPI) fell to 659.40% in the month of September 2020 shedding 101.62 percentage points as compared to 761.02% in August, the Zimbabwe National Statistics Agency (ZIMSTAT) reported on Tuesday.

This is the second drop in year-on-year (YoY) inflation since the record high of 837.53% experienced in July. The spike in inflation since October 2018 has been on the backdrop of reintroduction of the local unit. The weaker Zimdollar has failed to hold against a stronger USD until only a couple of weeks ago.

The easing in inflation comes on the back of the Zimbabwean dollar constantly gaining against the United States Dollar since the 1st of September which resulted in prices of commodities and services stabilising and a stable parallel market rate.

These shifts in the exchange rate have been witnessed since the beginning of July after the reintroduction of the foreign currency auction system. The official exchange as at 13 October 2020 was USD1: ZWL 81.3458.

Furthermore, On July 24, government introduced Statutory Instrument (SI) 185 of 2020 which compels sellers of various goods and services to display, quote and offer prices in both the Zimbabwean dollar and foreign currency at the ruling exchange rate (that is, the last established auction rate), buttressing a stabilising local currency.

The move was enacted to promote price stability and expel price distortions which have characterised the wider market.

Government has an ambitious target of achieving an annual inflation of 300% by December 2020. However, experts have thrown a shadow of doubt on that outlook.

Research firm, Equity Axis in its August 2020 Economic Research Note said that this target will likely be missed. According to the firm, the balance of risks remains to the downside and highlighted by the large difference between wages and price level which will likely force the government to continue offering cost of living adjustments to its civil service.

Equity Axis News.

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