- August deflation came at -6.2%
- However, it gained 9.1% points from -15.3 last month
- About deflation
Harare- Zimbabwe experienced negative month-on-month inflation for the second consecutive month in August, although there was an increase of 9.1 percentage points. According to the latest data from the country's statistics agency, ZIMSTAT, deflation moved from 15.3 percent in July to a deflation rate of -6.2 percent in August.
Deflation is characterised by a sustained decrease in the overall price level of goods and services in an economy over an extended period. In contrast to inflation, during deflationary periods, the purchasing power of money increases as prices decline. This allows individuals to buy more with the same amount of money, leading to an expansion of real income and potential savings. However, it is worth noting that the situation in Zimbabwe is subject to debate, as the government utilises blended inflation measures, which may affect the accuracy of real Zimbabwean dollar inflation calculations.
On a year-on-year basis, Zimbabwe's inflation rate declined to 77.2 percent in August 2023. This represents a decrease from the inflation rates of 106.3 percent recorded in August 2022 and 101.3 percent in July 2023. The declining inflation rate suggests a moderation in price increases over the specified period due to a tight monetary policy stance.
The ongoing decline in year-on-year inflation indicates the government’s implemented tight monetary policy approach. These involves measures such as controlling the money supply, issuing Treasury Bills (TBs), maintaining high interest rates, and transferring the responsibility of printing the 25% export surrender portions from the Reserve Bank of Zimbabwe (RBZ) to the Treasury. These actions aimed at managing inflationary pressures and stabilising the economy by reducing the overall increase in prices and have yielded results.
Additionally, the deliberate delay in meeting payment obligations to suppliers and exporters, coupled with the requirement for companies to settle their 50% Quarterly Payment Dates in the local currency has created a heightened demand for the local currency. As a result, prices denominated in Zimbabwean dollars have experienced depreciation. This situation arises from the increased demand for the local currency relative to its supply, leading to a decline in its value against goods and services.
Due to deflationary conditions, the month-on-month producer price index (PPI) rate in July 2023 experienced a significant decline of -21.8 percent. This represents a substantial reduction of 126.0 percentage points compared to the June 2023 rate of 104.2 percent while the Producer Price Index (PPI) for Agriculture experienced a decline in July 2023, reaching -13.8 percent.
This signified a significant decrease of 82.1 percentage points compared to the June 2023 rate of 68.3 percent. The negative PPI indicates a contraction in producer prices within the agricultural sector. This decline reflects the prevailing downward pressure on prices in the agricultural industry during that period.
However, deflation can lead to a cautious spending environment within a nation, which can be detrimental to industrial growth. When consumers anticipate further price declines, they tend to delay purchases, which can negatively impact businesses and hinder economic expansion. If deflation is coupled with challenges in the electricity sector, such as power shortages or unreliable supply, it can further impede industrial growth. Insufficient access to electricity can disrupt production processes, reduce output, and hinder the overall competitiveness of industries.
The ongoing disparity between the formal market rate, set at 4.6k, and the parallel market rate, which exhibits a larger margin at 7000, remains significant. The parallel market, operating outside the official channels, often reflects the supply and demand dynamics of foreign currency in a less regulated environment. This significant difference between the formal and parallel rates also makes the blended inflation numbers debatable.
However, there is a growing concern that if the current government remains in power, it is likely to fulfil its obligations to suppliers in ZWL and inject a significant amount of Zimbabwe dollars into the economy. This potential influx of currency could lead to a resumption of exchange rate volatility and have implications for inflation trends following the election. This highlights the need for the government to carefully manage monetary policy and implement measures to promote stability and sustainable economic growth, regardless of the election outcome.
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