According to the most recent ZIMSTAT inflation figures for January 2023, Zimbabwe's headline inflation declined marginally from 243.8% a month earlier to 229.8%, while month-on-month inflation also decreased from 2.4% to 1.07%. Regardless of this slight decline in MOM and annual inflation figures, the leading CPI changes are based on ZWL pricing which is inherently weakened by a regularly depreciating currency.

The dual currency price system in Zimbabwe is taken into account in ZIMSTAT's blended inflation figures for comparison. Inflation rates monthly shed by 0.6 percentage points from 1.3% in December to 0.7% in January 2023, while the combined headline rate was 101.5% in January, down from 105.5% in December 2022.

Taking a closer look at the country’s composite basket of consumer goods, January’s top five inflation drivers were:

Housing, Water, electricity and gas have seen a 3% month-on-month price hike, driven by the EU sanctions on Russian oil which saw the oil price dynamics change in the month under review.

Transport on average became 1.3% more expensive in response to the ever-growing prices of oil-based lubricants and liquid fuel.

Furniture and Equipment and its 0.9% rise in average prices, partially driven by the increase in capital equipment prices as companies stocked up for the year.

Food and Non-Alcoholic on average became 0.9% more expensive as producers adjusted their pricing upward to reflect the supply chain dynamics stemming from recession fears. 

Health realised an 0.9% average price growth driven by the resumption of the school-going calendar as well as the resumption of the work population necessitating that health costs increase to accommodate the stakeholders.

Presidential Election Period: Quantitative Easing Possibilities

Elections are fast approaching, raising concerns that voter appeasement may damage liquidity-tightening measures. It may be impossible for the local currency to establish any type of stability as a result of government contractor payments getting going again and the decline in the popularity of gold coins, which were intended to absorb excess liquidity in the market. Given the foregoing, there is still a significant demand for US dollars due to:


•          ZWL pricing instability concerns,

•          Low confidence in the local currency as a store of value and also


Fears of quantitative easing have increased because it could lead to more inflation than intended if the quantity of easing required is overestimated and too much money is produced by buying liquid assets. On the other hand, if banks continue to be unwilling to lend money to individuals and businesses, QE may fail to increase demand. The dynamics of Zimbabwe's inflation will continue to be impacted by the turbulence of the currency markets. The longer-term price discovery process is modelled exclusively by the interbank model; suffice it to say that all other factors are constant. In the upcoming months, the cost of living will undoubtedly continue to increase.


Imported Inflation from SA’s load shedding

Given that South Africa was Zimbabwe's top trading partner during the time under review and accounted for 36.88% of all imports into Zimbabwe, it is certain that excessive load-shedding in South Africa will result in significant imported inflation impacts for Zimbabwe. The agricultural industry in South Africa is suffering greatly as a result of load-shedding, and food inflation is likely to rise. Zimbabwe may experience this effect as well. Load-shedding drives up costs both directly and indirectly by increasing food chain wastage and spoiling rates. According to financial reports from several food industries, fuel costs to run generators during load shedding are soaring. These expenses are largely passed through to customers and importers like Zimbabwean businesses since they cannot be absorbed by the supply chain. In fact, in addition to the local taxing systems that have pushed prices up, we anticipate that load shedding will be a major contributor to price hikes in Zimbabwe.

Zim interest rates down to 150%, against the backdrop of China's economy being reopened and recession concerns

Looking at the global economy as a whole, tighter financial conditions and ongoing dollar strength have prepared the ground for upcoming decisions by the central banks of sub-Saharan Africa, many of which hiked interest rates to fight inflation. Monetary authorities increased interest rates to offset the negative effects of inflation as the global economy heated up and gained momentum. We expect interest rates to continue being under pressure over the next three to six months. Predictions of recessions have historically proven to be inaccurate, but in current inflationary times, real wage changes should be observed with the understanding that if there isn't a significant turnaround, declining demand from declining consumption will eventually cause a recession.

 The International Monetary Fund raised its estimates for world growth for the year but cautioned that the impact of rising interest rates and Russia's invasion of Ukraine would probably still be felt. In its most recent economic assessment, the IMF predicted that the world economy will expand by 2.9% this year, up 0.2 percentage points from its previous prediction made in October 2022. That figure would represent a reduction from the 3.4% expansion in 2022, though. Additionally, it reduced its 2024 prediction to 3.1%.

 China's abrupt reopening elsewhere lays the path for a quick recovery in activity. Additionally, as inflation pressures began to ease, the state of the world's finances improved.

 These factors, along with the US dollar's decline from its peak in November, gave emerging and developing nations some little solace. Depending on how the global economy responds to the ongoing monetary crisis, the depth of Zimbabwe's economic catastrophe will become more obvious. The RBZ should consider other options besides just using high-interest rates (150%) to target inflation. For instance, it is better to support an increase in interest rates by strengthening currencies. As a result, monetary policy adjustments will continue to have little effect on the economy as it is now, which will breed further scepticism about the local government's motivation and ability to create an environment that allows for the improvement of people's living standards. The MPC will convene soon to talk about controlling the money supply and if interest rate adjustments are necessary given that annual inflation has been trending downward since September 2022. In the upcoming months, we expect inflation to keep rising and eventually reach benchmark interest rate levels.