- Headline inflation rate reported a flat 0.0% reading in June 2024, indicating stagnant price levels
- This was despite a 3% depreciation of the local currency against the US dollar
- Most retailers rounded up prices of basic products to the ZiG14 level
Harare - Zimbabwe's month-over-month headline inflation rate moderated to a zero percent print in June 2024, having receded from the prior negative territory of -2.4% observed in May, according to the nation's central statistical agency, Zimstat.
The flat 0.0% reading indicates a complete absence of price pressures, with the price level failing to rebound and register any meaningful inflationary impulses during the period. This suggests the domestic economy was effectively stagnating at a no-growth, neutral level in terms of pricing dynamics.
Shifting to the foreign exchange-denominated inflation metrics, the month-on-month USD inflation rate clocked in at -0.3% for June 2024, shedding 0.4 percentage points relative to the May 2024 print of 0.1%. On an annualized basis, the year-over-year USD inflation rate stood at 3.8%.
While inflation is influenced by a myriad of factors, in the context of an inflationary economic environment such as Zimbabwe, exchange rates play a pivotal role in driving commodity prices and, by extension, overall inflationary pressures.
In the case of Zimbabwe, which has long grappled with elevated and volatile inflation, the exchange rate of the local currency against foreign counterparts is a primary determinant of prices for a wide range of goods and services.
When the Zimbabwean dollar experiences sharp depreciations against major global currencies, this directly translates into soaring import costs and domestic price levels across the economy.
Back to context, the local currency experienced a 3% depreciation between May and June, with the ZiG exchange rate moving from 13.2432 to 13.6814 on June 27th. This corresponded to a 3% inflation rate over that monthly period.
If the pricing were adjusted in accordance with the daily foreign exchange fluctuations, one would expect to see product prices increase by 1-3%, depending on the elasticity of demand.
During the period, most retailers also rounded off the prices of basic products to ZiG14 level and around that region.
Retailers were also able to round up prices to the ZiG14 threshold, rather than strictly tracking the underlying 3% currency depreciation.
Therefore, a 3% currency depreciation would normally be expected to lead to higher inflation.
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