Inflation closes 2015 at – 2,47 percent as rand pressures continue to weigh


The new Reserve Bank Governor, John Mangudya

Reserve Bank Governor, John Mangudya

THE year on year inflation rate for December shed 0,01 percentage points to move slightly to –2,47 percent from the November figure of –2,46 percent.

The rate is expected to remain due to the appreciation of the US dollar against the South African rand (the main trading partner), tight liquidity conditions and weak consumer demand. The rand has been in free-fall since mid-last year and has lost 26 percent of its value since June. Last week Monday, the rand fell 2,8 percent against the dollar to fall to a records low R16,78 to the dollar and was trading at 16.8 today. The continued weakening of the rand is set to weigh negatively on Zimbabwe`s inflation outlook this year.

Continued deflationary pressures potentially have several negative effects on the Zimbabwean economy: consumption and investment demand could weaken further as real debt burdens increase; households anticipate further price reductions and firms face higher real interest rates. In addition, nominal wage rigidities may reduce profit margins for domestic firms putting a drag on domestic production.

However, Government says it has taken steps to tackle deflation such as measures to reduce imports by removing basic goods from the travellers’ rebate and banning the importation of second hand clothing and shoes. This is likely to impose some level of upward pressure on inflation rate, as these were exerting high level of competition on domestic producers. However, they are unlikely to be sufficient to ensure inflation moves into positive territory.

According to the figures released by Zimstat, negative inflation was witnessed in key weights such as food, non-alcoholic and alcoholic beverages in keeping with recent inflation trends, as consumer disposable incomes are have been under pressure. Zimbabwe has been recording negative inflation since October 2014. Other major weights which experienced negative inflation year on year for December include housing, water, electricity and other fuels; communication, telephone and telefax services as well as Clothing and footwear. However, positive inflation was witnessed in the education band.

According to statistics released by Zimstat, the year on year Food and Non Alcoholic beverages inflation prone to transitory shocks stood at -3,71 percent, further putting significant pressure on food retailers margins in a sector where competition is growing and undergoing rapid informalisation. In the same period, Non- food inflation rate was 1,89 percent.

The month on month inflation rate in December 2015 was -0.11%, losing 0.27% percentage points on the November 2015 rate of 0.16%. The month of December also saw suppressed economic activity as foreign currency remittances were dampened by the strengthening dollar.

Month on month, Food and Non Alcoholic beverages inflation rate stood at 0.21%, slipping by 0.25 percentage points on the November 2015 rate of 0.04%.

The month on month non-food inflation rate stood at -0.06%, shedding -0.28% points on the November 2015 rate of 0.22%.

For December, the All items Consumer Price Index (CPI) stood at 97.10 compared to 97.20 in November 2015. FinX

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