December inflation misses the government’s target

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  • December CPI stood at 348.59 %
  • Month-on-month inflation came in at 4.22%
  • December figure was a miss from the government’s 300% target

The retail inflation, measured by Consumer Price Index (CPI) for December 2020 measured by the all items CPI stood at 348.59 %, shedding 53.07 percentage points from the November figure of 401.66%, the Zimbabwe National Statistics Agency (ZIMSTAT) reported on Monday.

Month-on-month inflation came in at 4.22%, gaining 1.07 percentage points from November. The latest inflation figures indicate a sustained prices surge but at a slower pace. This is the fifth drop in Year-on-Year (YoY) inflation since the record high of 837.53% experienced in July.

The December figure was a miss from the government’s earlier ambitious target of achieving annual inflation of 300% by December 2020. However, experts had cast a shadow of doubt on that outlook.

Equity Axis Research team in its August 2020 Economic Research Note hinted that this target would likely be missed. According to the firm, the balance of risks remained on the downside and highlighted the disparity between wages and price level which would force the government to continue offering cost of living adjustments to its civil service.

In 2021, the Ministry of Finance has set an ambitious target to slow annual inflation down to an average of below 135% and 1% for month-on-month inflation

Comparatively, annual inflation was 471.25% in October and 659.40% in September.

The easing in inflation comes on the back of a stable exchange rate between the Zimbabwean dollar and the greenback on the foreign currency auction system where it has sailed below the 1:82 threshold for several months, having come in at 1:81.7 in the most recent trading session.

Meanwhile, the RBZ is reported to be in the process of introducing new higher notes denominations into the economy to supplement the existing cash balances. The impact of the injection cannot be readily ascertained given that the quantum of expected injection is not yet known. The overall notes and coins balances in the economy in ZWL terms however remain grossly below the rule of thumb or global averages of circa 15%.

The RBZ  has long made clear its intentions to drive the average to about 10% of the total money supply. The challenge though is that with a fast depreciating currency and spiking inflation, M3( Money Supply) is a moving target since it alters more frequently and with larger changes, under the circumstances. Thus injecting new notes based on the prevailing total money supply when the exchange rate is depreciating at higher rates is tantamount to causing further inflation, assuming the quantum of new cash injections is proportionate to the growth in the money supply.

Equity Axis News.

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