Prosper Ndlovu, Business Editor
THE recent inflation spiral is expected to retreat going forward, which will boost disposable incomes and restore purchasing power as the Government is implementing measures to contain speculative conduct, a Cabinet Minister has said. This comes as continued downward review of fuel prices, coupled with tightening of money supply have started fostering market stability, with the Consumer Council of Zimbabwe (CCZ) crediting this for the gradual decline in the cost of living.
For the past few weeks, the country has experienced relative exchange rate and pricing stability with illegal money dealers now struggling to access cheap Zim-dollar supplies, as was the norm before. The introduction of gold coins as an alternative store of value, the bulk of which have been sold in local dollar, is also promoting the use of the local currency and easing the pressure on the US dollar, whose demand has been driving exchange rate volatility, economic experts have said.
Just last week, the Government directed immediate suspension of current payments to contractors by ministries, State agencies and departments after realising that submitted invoices for goods and services were done using parallel market rates. Going forward, Treasury approvals and thorough due diligence will be required as authorities close all leakages fuelling parallel market activity and resultant inflationary pressures.
Finance and Economic Development Minister, Professor Mthuli Ncube said the measures will quickly arrest inflation with positive pass-through impact in the form of enhanced disposable incomes and aggregate demand for businesses.
“We’re beginning to see the month-on-month inflation beginning to dip and the exchange rate beginning to hold where it is and that’s a good thing. We need that stability for us to focus on development,” said the minister in an interview on the sidelines of the Zimbabwe Economic Development Conference, which ended in Victoria Falls on Friday.
Already, the Zimbabwe National Statistics Agency (Zimstat), has reported that the country’s month-on-month inflation rate dropped to 25,6 percent in July, shedding 5,1 percentage points on the June rate of 30,7 percent with annual inflation standing at 256,9 percent.
This corresponds with the CCZ report that the cost of living for a family of six decreased by $742,37 in the week ending August 5, 2022, indicating the cooling down impact of the policy measures and drop in fuel prices, which are a major cost driver.
By the end of July, the cost of living was pegged at around $281 062.83 but CCZ says this has now dropped by 0,26 percent to stand at $280 330,46.
“Indeed, the increase in inflation was really beginning to erode purchasing power, incomes and demand for ordinary citizens. So, the dipping on monthly inflation downwards will go a long way to restore value to citizens’ purchasing power, and lower the cost of living once again,” Prof Ncube added.
“All this is critical in beginning to improve savings and may even encourage investments. So, all this is going in the right direction in terms of restoring purchasing power for all citizens.”
Concurring with President Mnangagwa, who earlier chided speculative market behaviour and profiteering businesses, Prof Ncube said it was important for Zimbabweans to understand what has been driving the cost of living or inflation in Zimbabwe and critically assess the corrective actions that have been taken by the Government.
“One of the factors that has been impacting the cost of living in the economy is imported inflation, which has been coming through via the price of fuel but also through the price of other goods and raw materials such as fertiliser and so forth,” he explained.
“But also, domestically, we have inflation being brought about by the weakness in volatility in the currency. So, what have we done about all this?
“On foreign or external factors rather, we have had a situation whereby overall FOB [free on board] price of fuel has been coming down. We too as the Government have responded by adjusting the levy on fuel accordingly to make sure that wherever there is a sharp increase, that increase is capped and so forth, and we have seen a downward trend and general stability in the fuel prices. That’s one factor that has helped stabilise inflation and cost of living,” said the minister.
Furthermore, he said the Government’s blending programme around petrol has been very helpful. The country blends up to 20 percent using ethanol and that again has helped “cap the sharp increase in fuel pricing that we consume”, he said.
“Then on the domestic front, in terms of domestic factors, which is mainly the currency, we have worked very hard to curb speculative activity.
“First of all, we have made it very expensive for speculators by raising the domestic interest and the policy rate is now at 200 percent. We feel this is beginning to bite someone just to make sure that it’s difficult to speculate. It shouldn’t be easy money,” said Prof Ncube.
“Before that we had negative interest, basically we had free money but right now we don’t have free money anymore, now money is costly.”
Again, the minister said the Government has become very firm in terms of pricing policy, especially with regards to procurement and payment of contractors for public goods and services.
“We are introducing this value for money process enacted and implemented by the Value for Money Unit, which the Government has established to make sure that, you know, we get the value for money,” he said.
“All the overpricing, forward pricing in terms of using a very high exchange rate, that has got to stop and we have come hard on that. As I speak, we have actually suspended all payments by the Government to all service providers currently until we get some validation that the prices are within reasonable grounds. Some of the prices are actually crazy for a fact and that’s one area where we have instituted measures.”
Prof Ncube said Government was also implementing wider measures to deal with market indiscipline to make sure that those who deviate are adequately punished or sanctioned for economic misdeeds.
“There is a lot that we are doing and we have made sure that either we are tackling domestic factors or acting on external factors and those together have gone a long way in beginning stabilising inflation and the exchange rate,” he said.