HomeBusinessZim's inflation basket up for review

Zim’s inflation basket up for review

Godfrey Marawanyika

THE government is set to review the inflation basket as it feels that the current method of aggregating inflation pointers has lost its effectiveness.

“Verdana, Arial, Helvetica, sans-serif”>Zimbabwe calculates its consumer price index (CPI), reflecting year-on-year and monthly percentage changes, in the average price of a basket of goods comparative to a given period.

The inflation basket comprises 33,6% of food items and the difference is made up of non-food items.

Andrew Bvumbe, a principal director in the Ministry of Finance and overseer of the main Central Statistical Office (CSO) charged with gathering the CPI figures, said they were already working on the new methodology.

“CSO is currently working on the inflation basket, given that over the past two to three years consumption levels have significantly changed,” he said.

“Once they are through everyone will be notified and that will also be reflected in the inflation figures, as CSO will make the announcements.”

The former Privatisation Agency of Zimbabwe boss said if the amendments were carried through this could see the products, mainly daily consumption or bread-and-butter goods, being changed.

The marked slow down in monthly inflation has seen the annualised rate falling sharply to nearly 209% from a peak of 622,8% in January this year.

As a result, the central bank has further adjusted its inflation forecasts from a target of 200% in December to between 150 to 160%.

A bank economist, who spoke on condition that he was not named, ratcheted up a long-held view that the government could have been applying the wrong CPI-calculation method altogether, saying the anticipated review meant that the CSO might have been working on the wrong figures.

“The Central Statistical Office might have been working on the wrong figures all along,” the economist said, adding that other people are including essential goods otherwise deemed as luxury items in the prior calculation method. Such goods, he said, included electronics.

“Other people now put cellphones in their shopping basket every month. It is a good thing that the government is now reviewing the basket. It might be late, but essential.”

Over the past two years, analysts said, inflation figures and the calculation process could have been compromised, since a large portion of products — making up the traditional basket — were available on the informal market.

There were also concerns that the samples which were being used by government for calculating inflation were products that are under price controls.

In its monetary review policy in October, Gideon Gono’s Reserve Bank of Zimbabwe said the fiscal side should remain vigilant to consolidate the disinflation trend.

It, however, expressed concern last week when Herbert Murerwa’s Finance ministry availed a $5 trillion capital expenditure facility, saying “inappropriate use” of that budgetary outlay could negatively impact on money supply growth, otherwise known as M3.

As a stop gap measure to discourage M3 growth, known to negatively affect inflation rate, the central bank said the money would be channelled towards productive sector facility (PSF).

PSF is a cheap financing facility for resuscitating industry.

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