Inflation surge wipes out economic growth hopes

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Rampant inflation has wiped out Zimbabwe’s hopes of 3.8% economic growth and increased local firms’ capacity utilisation amid a surge in costs thereby threatening business viability.

Zimbabwe month-on-month inflation rate in June raced to 74.5% from 15.7% in May. The year-on-year inflation rate for June jumped to 175.8%. from 86.5% in May.

The Reserve Bank of Zimbabwe (RBZ) has projected blended annual inflation for 2023 to be between 10% and 30%.

Confederation of Zimbabwe Industries (CZI) president Kurai Matsheza told Business Times that the rising inflation was a result of the local currency losing value against the US$ forcing prices to go up.

“These numbers confirm that we are in hyperinflationary territory and it’s not good for any economy, especially a fragile economy like ours as economic growth will be subdued and companies’ production levels will severely be affected,” Matsheza said.

He said it is the second time that Zimbabwe has plunged into hyperinflation territory. The government introduced a first set of measures to contain rising prices and the measures included increasing the retention on domestic foreign currency sales to 100%, adoption of all external loans by treasury and promotion of use of domestic currency by government agencies among other measures.

“The mopping up of ZWL$ liquidity in the market is good but the authorities have to strike an equilibrium not to go the other way of the pendulum.

“We need to know that the inflation is under check and also that the economy is growing. If we go to the other end we will see that the inflation will be under control but the economy will be stagnant,” he said. In its latest report, CZI said blended annual inflation is on the rise again after months of persistent decline.

“This generally underlines that all the inflation gains that had been forecast by monetary policy to be sustained into 2023 have now gone. The ability to meet blended inflation targets is now under serious threat,” CZI said.

Prices in local currency have spiked during the past two months.

This has left many companies broke, judging by financial statements for the quarter to March 31, 2023, which the companies have been publishing over the past two weeks.

Many have gone skint as they reported loss positions, largely due to inflationary pressures.

CZI said inflation has been disastrous for local companies, with most of them failing to ratchet up production fast enough to meet demand.

Rising inflation causes a reduction in the value of money, which can be translated as a decline in purchasing power over time, according to experts.

Surging inflation rates results in companies passing on those costs to their customers, a move which will adversely affect aggregate demand as many will struggle to afford higher prices of goods and services.

Rising inflation also means that consumers have to pay more for the same goods and services.

Inflation raises prices, lowering purchasing power.

Overtime, it increases the cost of living. Inflation reflects   the rate of increase in the prices of goods and services in an economy at any given time.

The RBZ also hiked interest rates to 150% from 140% to make it pricey to borrow cash as well as taming inflation.

Apart from elevated prices of goods and services that fuel high inflation in Zimbabwe, local companies are also battling a long list of constraints such as crippling power cuts, acute shortages of foreign currency, liquidity squeeze and currency volatility, among many other problems.

They are also feeling the heat of the geopolitical shock of the war in Ukraine, which is just putting an additional level of pressure, through a significantly disrupted fuel trade, exacerbating the situation.

The increase in prices has caused panic in the market, which has led the government to respond with a raft of measures in a bid to contain inflation.

Last week, parallel market rates were ZWL$9000 per US$1. The rate had gone down to ZWL$8500 per US$1 while the official rate has retreated to ZWL$6326.58 per US$1 from ZWL$6926.57 per US$1 last week.

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