Zimbabwe inflation rate keeps dropping

July’s decline in the annual rate of inflation is the second consecutive decline following last month’s modest fall of 8,9 percentage points.

The last time there was a consecutive two-month fall in annual inflation in the country was 14 months ago between February and March 2005.

Falling inflation rates do not mean lower prices – that requires a negative inflation rate.

What the drop shows is that while prices are rising, and rising fast, they are not rising as fast as they were.

However, the month-on-month inflation figure for July rose by 7,8 percentage points on the June rate of 17,3 percent, indicating that although the rate of price increases had slowed down on an annual basis, goods and services which cost $100 in June 2006 went up to $125,1 last month.

Announcing the latest statistics, CSO acting director Mr Moffat Nyoni said the main contributory factor to the decline in the annual inflation rate last month is that the huge increase in prices on a monthly basis that took place in July 2005 (47 percent) was not repeated in July 2006.

Annual inflation rates fall if the monthly increase this year is less than the monthly increase last year, and rise if it is higher.

Monthly inflation hit a record 47 percent in July last year as drought effects and exchange rate adjustments took their toll on prices.

The annual inflation rate is most likely to go up a little in August since last year the monthly inflation rate was a mere 8,3 percent while the effects of the devaluation of the Zimbabwean dollar by the central bank last week will also surface in the August figure this year.

But then annual rates should drop since the September 2005 monthly inflation rate was a heavy 33,3 percent.

The fall in the annual rate of inflation to below 1 000 percent means that prices in July were almost 11 times as expensive as they were in the same month last year with significant declines in price rises being recorded in food and non-alcoholic beverages inflation as well as non-food inflation.

“On a year-on-year basis, the items that recorded the highest increases in prices were paramedical services, domestic power, electricity, gas and other fuels while insurance (vehicle and health), fuel and hospital services were the highest climbers on a monthly basis,” said Mr Nyoni.

Inflation has been a thorn in the flesh for the architect of the country’s economic turnaround, the Reserve Bank of Zimbabwe, for more than 30 months now with forecasts now set at single-digit figures by the end of 2008.

Speculative activities by rogue economic players, high money supply growth coupled with fiscal indiscipline have been the cause of the inflationary pressure in the economy. Hence the need for a multi-pronged approach to fight the scourge.

RBZ Governor Dr Gideon Gono has defended the rate of money supply growth, pointing at the need to boost the supply side as a long-term cure to the inflationary ills while the recent currency reforms announced in the recent monetary policy statement will go some way in choking parallel market and speculative behaviours.

Going forward, the food inflation contribution to the overall rate should decline gradually as positive effects of the good harvest from the previous season begin to be felt.

Products such as maize meal, sugar, cooking oil and chicken are now readily available in most shops. ‘ The Herald.

August 2006
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