Inflation is, at its heart, not simply an economic problem, but a political and social problem. Inflation relates more directly to our political system's response to a changing social agenda than to any unresolved deficiency in our economic system.

Zimbabwe’s inflation roared back to three-digit levels in May 2022 spurred by the fast depreciation of the local currency against the dollar and supply chain disruptions emanating from the tensions in Eastern Europe following Russia’s military invasion of Ukraine. So, there are two major factors here; exchange rate driven inflation and global inflation driven by the effects of the Russia-Ukraine war.

The rapid price increases have the potential to reshape the political landscape with stark consequences for President Emmerson Mnangagwa’s agenda. 

Inflation in many forms

As the Austrian-American Economist, Professor Fritz Machlup once said;

“Inflation—it’s a monetary problem. No, it’s a fiscal problem. No, it’s a monopoly problem. It’s a labour-market problem. It’s a sociological problem. It’s a distributional problem. It’s a psychological problem. It’s a game-theoretic problem. It’s a system-theoretic problem. It’s an ideological problem. It’s a moral problem. It’s a political problem.”

Well, of course, all of these are right. And one can now conclude: It certainly is a problem.

Year on year inflation stood at 131.7 percent in May 2022, up from 96.4 percent in April 2022, the first-time annual inflation has reached three-digit levels since June 2021.

Month on month inflation increased to 21.0 percent from 15.5 percent in April 2022, maintaining its upward trajectory in the past three months to reach its highest level since July 2020’s monthly inflation of 35.5 percent.

Meanwhile, the local currency continues to lose ground against the dollar on both the official market and the parallel market. Last week’s Tuesday foreign auction market saw the Zimdollar shed another 11 percent to settle at ZWL290.8876 against a single unit of the dollar from the prior week’s rate of US$1: ZWL258.5404.

The parallel mallet rate is trading at a region of ZWL450 against the dollar and indications are that things will continue to get worse as the market shuns the local currency in favour of a more stable greenback.

These inflation trends create a severe political problem for President Mnangagwa just as his party aims to regain power in next year’s harmonised elections. The popularity of youthful opposition party leader, Nelson Chamisa of the Citizens Coalition for Change (CCC), shows that the country is once again set for a tightly contested election. By now most of you know this.

So why is this economic phenomenon such a political headache for the Mnangagwa regime which has limited tools for getting it under control?

To begin with, inflation is, at its heart, not simply an economic problem, but a political and social problem. Inflation relates more directly to our political system's response to a changing social agenda than to any unresolved deficiency in our economic system. This entails that Zimbabwe’s persistent inflation rests primarily on a changing social agenda and a political system which may be somewhat "out of sync," not on any fundamentally new characteristic of the economic system itself.

This persisting inflation challenge exposes the government as being not capable to solve the economic challenges and this will present a huge challenge in its quest to retain power in 2023.

To understand the basic underlying causes of inflation, one must ask why the government has persisted, through Mugabe and Mnangagwa administrations alike, in making the political choice of running large budgetary deficits and financing these, in part, by increasing the supply of money. To put the matter more directly, economic policies are forged in the furnace of national politics. The goals of governmental economic policy are selected within a political process where the economic, social, and political interests of different groups are balanced against each other.

One can argue that inflationary pressures are not thrust upon society by a central bank that is somehow inadequate. Rather, the RBZ’s policies as we saw with the President announcing a raft of economic measures on May 7, reflect the government's response to political pressure from its enablers who want ever-increasing benefits through policies forged under the name of the RBZ.

At the political level, our capacity to select and act on national priorities has become greatly impaired. The parliament has become a circus, the ruling party is abusing its majority seats status to pass through controversial policies whilst the opposition legislators are just political activists. There is no cohesion on matters of national interest. They stall each other’s initiatives and seem to have lost much of essential capacity for meaningful compromise.

It is not that the country cannot identify solutions to certain national problems. The problem is that it has lost the capacity to adopt any solutions that may impose a sacrifice on some particular group.

When opposition legislators like Advocate Tendai Biti propose that the country should dump the Zimdollar and adopt the rand or the US dollar, meaningful as the idea is given the current developments, he is easily dismissed as being politically subjective

While no group in society explicitly demands more inflation per se, pressures for the government to pursue a more inflationary policy arise from the fact that there are always groups - those who are next in line for the central bank’s support-who benefit from such a policy. That is, at any particular moment in time there are groups who believe that financing certain government programs by "printing money" will work very much more to their advantage.

These groups include contractors who then channel most of the local currency to the parallel market, thus driving exchange rate and consequently inflation. It also includes farmers. Most beneficiaries of the land reform program are ZANU-PF stalwarts who have benefitted through schemes such as the RBZ’s controversial Farm Mechanisation Scheme, without paying back a cent at the expense of the country’s economic stability.

Economic analyst Zvikomborero Sibanda said, “I think Mnangagwa is under immense pressure. People are suffering. He will be forced by ZANU-PF to react for their political survival ahead of 2023 elections.”

“However, these reactionary policies will worsen the protracted economic crisis at hand. We have seen it already in the May 7 Presidential measures that ended up being reversed by the RBZ. I still believe that more measures are coming that will cause more havoc,” Sibanda said.

Commenting on the inflation figures, he said that the latest ZimStat May 2022 inflation statistics show that the government's position that the macroeconomic fundamentals are sound is just mere rhetoric.

“The market has completely lost trust in RBZ as well as confidence in the Zimdollar. All this is largely attributed to the gross negligence of authorities.

“Therefore, if no bold actions are taken urgently to tackle exchange rate disparities, fiscal indiscipline, price distortions, and leakages emanating from corruption and illicit financial flows, the ZWL will soon be completely rejected,” he added.

Following the optimism in the build up to the resignation of the late former President Robert Mugabe and a few days after, there is now a growing lack of confidence in the capacity of the economic system under the second republic to deal effectively with its multiple responsibilities, price and financial sector stability included.

Is the government capable of developing solutions to our continuing inflation, exchange rate depreciation, unemployment, energy challenges, or a host of other economic issues currently outstanding?

A lot is at stake. The government is under pressure as the 2023 elections draw near. To explain inflation exclusively in economic terms is not only less than fully satisfying but work to obscure the nature of the underlying causes. The political factor is as much a significant cause of the inflationary pressures as is policy own goals peddled by Mangudya and Professor Mthuli Ncube at the Ministry of Finance.

The only good thing for Mnangagwa’s administration is that inflation in 2022 is not only Zimbabwe’s problem, it is a global problem. Prices are also rising faster in the European Union and America as well as in Asia and other global jurisdictions. This speaks to how universal and intractable the problem is.

Russia’s military invasion of Ukraine exacerbated the global inflationary pressures leaving most global leaders scratching their heads. Whilst an 8 percent is too high for the USA, Zimbabwe’s inflation compares at over 130 percent.

On balance, other countries like the USA, Britain, Canada, and even South Africa, have the best tools for battling soaring prices compared to Zimbabwe.

Inflation is a local problem and up to this point, Mnangagwa’s administration is showing a lack of capabilities to reign on it. This presents a political problem going into 2023.