- Month on month inflation shoot to 74.5%
- Year on year inflation rocketed to 175.8%
- This was due to the rapid depreciation of the local currency
Harare- Zimbabwe’s year-on-year inflation jumped to 175.8% in June, up from 86.5% in May, a record 89.3 percentage points rise while month on month soared to 74.5% from 15.7% last month according to the latest data released by ZIMSTAT.
The latest inflation data puts Zimbabwe in a hyperinflationary period since 2008 when the country recorded its worst inflation which caused the government to dump the Zimbabwe dollar. Zimbabwe also embraced a hyperinflationary period in 2020 which forced the government to re-legalise the use of the US dollar.
This phenomenon is primarily attributed to the swift depreciation of the local currency, resulting from inadequate currency stability policies that have failed to address fiscal indiscipline and a confidence deficit crisis.
The Consumer Price Index (CPI) rose to 566.73 in June from 324.63 in May with the CPI for food and non-alcoholic beverages having the highest month-on-month inflation rate of 104.2%.
This took the food poverty datum line to ZWL69941 and the total consumption poverty datum line for one person to ZWL91172.
Since the commencement of the year, the Zimbabwe government has been passing on a plethora of economic measures, meant to curtail inflationary pressures through stabilising the Zimbabwe dollar.
Some of the key measures include maintaining tight borrowing costs, liberalising the auction and interbank rates as well as removal of taxes and duties for certain products.
In June alone, the government increased interest rates from 140% to 150% while on the 23rd of the month, the government compelled companies to pay 50% of corporate taxes in local currency, expecting to boom in demand. The government further seriously implemented a market-determined auction market rate, though not enough as margins continued widening between the two markets.
However, most if not all of the policies fell short as they failed to bring the intended results. The Zimbabwe dollar started trading in June on the formal market at ZWL3.67 thousand against the greenback widening month-date losses by 63%. With the latest inflation figures, it is likely that the Zimbabwe dollar will lose more value shedding prior session gains against the US dollar.
It is, however of paramount importance to note that the problem is not with the policies themselves, but it is with who is initiating the policies and what the intended target of the policies is. The root cause of the problem is not the policies themselves but rather who implements them and their intended targets.
Zimbabwe's market has lost confidence in the Central Bank and Treasury due to policy inconsistencies and fiscal indiscipline, leading to a further loss of confidence in the Zimbabwe dollar. Since the hyperinflationary period of 2008, people have lost trust in the banking system and the Zimbabwe dollar.
As a result, currency reform is needed as the first and foremost policy to restore confidence in the local currency. This may involve adopting a new currency regime, such as dollarisation, setting up a currency board, and implementing monetary policy reforms to better manage inflation and exchange rates.
For Zimbabwe to have stability there is a need for currency reform. This should be the first and foremost policy. The government should consider reforming its currency system to restore confidence in the local currency.
The RBZ need to exercise its freedoms, free from political manipulation and the government embraces fiscal discipline. Government should learn to live according to its means, and divert from the cranking machine. A confidence deficit can only be addressed when a functional, trusted currency is on board.
Secondly, fiscal discipline is key. Government’s insatiable thirsty to create money through issuance of TBs and quasi fiscal activities should be curtailed. However, as long as the debt crisis and political reforms are not addressed, it is difficult to divert from money creation to cover budget deficits. The situation is exacerbated by corruption and the selective rule of law.
Equity Axis News
