When former Reserve Bank of Zimbabwe governor Gideon Gono declared — more than a decade ago — that inflation was the country’s number one enemy, not many thought the same economic indicator would torment downtrodden citizens in years to come in another form.
BY VICTORIA MTOMBA
Back then, inflation reached record levels of over 231 million percent, the highest in world history for a country not at war. Prices would skyrocket daily and sometimes hourly and rent-seeking behaviour became the new game in town.
Fast forward to 2009 when the country adopted a multicurrency regime, runaway inflation halted, prices stabilised and the economy registered steady growth for three years. Many opined that dollarisation was the panacea to the economic challenges. But alas, it has not been the case.
As commodities’ prices continued to fluctuate exposing the South African economy to the harsh reality, the rand — one of the main currencies used in Zimbabwe — weakened against the United States dollar, piling deflationary pressure on the local economy.
South Africa is Zimbabwe’s biggest trading partner and naturally, any sneeze across the border gives Zimbabwe a cold.
Now prices are trending downwards, resulting in weakening aggregate demand.
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Since 2009, the country has had single digit inflation which was an achievement, but things began to change in 2013 when the inflation rate became negative.
Discount or price cut Ads now welcome clients at most retail shops as negative inflation now undoes the economic gains registered during the tenure of the coalition government, which ended in 2013.
Retailers, manufacturers and even the informal sector have reduced prices for goods and services.
This buttresses the fact that the country is in deflation and inflation figures confirm this.
Since January to date, the country’s inflation figures have been on the negative side and finance minister Patrick Chinamasa in his mid-term policy said price decline was expected to prevail during the remaining part of the year.
Average annual inflation for this year is projected at -2% against the initial projection of -1%.
Zimbabwe Congress of Trade Unions president George Nkiwane said while there has been a reduction of prices, there is no demand for the goods and services due to low disposable income.
“Demand is suppressed and it is only a few who now have demand for goods and services. The problem is, even if the prices go down who can pay for them? It’s only a few who can afford,” he said.
Nkiwane said there was need to put in place policies that brought in investment that would help stimulate demand. He said the country now had two classes — the very rich and very poor. The middle class, which should also be in the society’s structure, no longer existed, he said.
Data from the Zimbabwe Stati-stical Agency shows that during the first nine months of this year, inflation remained negative with the September figure being -3,11% as measured by the all items Consumer Price Index.
Price declines were pronounced in the categories of food and non-alcoholic beverages, clothing and footwear, housing, water, ele- ctricity, gas and other fuels, communication, recreation and culture, restaurants and hotels and miscellaneous goods and services.
Treasury said the falling prices were in part a correction of domestic price structures, which had trended past hyper-inflationary pricing practices, relatively high labour costs, utilities, cost of borrowed capital as well as other costs of doing business.
Economist Tony Hawkins said due to dollarisation, local goods had become expensive and it had gotten worse in the past two years or so. Although prices had come down by 3% year-on-year, it was not a dramatic decline given the fact that the United States dollar was overvalued by 50%.
“This is a necessary adjustment but I don’t think it is planned by anybody. The adjustment is at a time when businesses are depressed and jobs are being lost and the economy is in recession,” Hawkins said.
He said the country was in deflation because prices were falling compared to disinflation which occurs when only inflation falls and everything else goes up.
Hawkins said under normal circumstances, the only reaction would be to print money, but for Zimbabwe it was no longer an option due to the introduction of the multicurrency system.
Consumer Council of Zimbabwe executive director Rosemary Siyachitema said despite the price reductions, spending patterns were low as consumers were faced with a lot of expenses.
“The ordinary people cannot afford because people have been sent away from work and the ordinary man is not earning much, and some have gone for months without being paid,” she said.
Confederation of Zimbabwe Industries president Busisa Moyo said margins and profitability were much lower as costs had remained high while prices were falling.
He said in some cases, companies that procured goods from South Africa and Zambia were also finding that input costs were falling in United States dollar terms and competition was increasing from within, as well as from foreign suppliers.
“Most companies have not seen an increase in volumes because of price reductions. In fact, capacity utilisation is falling and our Purchasing Managers Index is below 50%, it’s at 43,1%.This shows a downturn, not upturn,” Moyo said.
He said the outlook was grim and companies would find it more difficult to survive as measures to lower the cost of doing business and the ease of doing business taking long to be put in place.
A local analyst said the price reductions were a sign of weakening demand and the waning rand since the country imported 60% of its goods from South Africa.
“There is not enough liquidity in the market to stimulate consumption but unfortunately, the monetary authorities are incapacitated to pump in money because of the dollarisation. They cannot print money,” the analyst said.
