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Is Zim sliding back to hyperinflation?

 

Zimbabwe’s year-on-year inflation raced to 175.66 percent in June from 97.85 percent in May driven by a rise in the price of food and nonalcoholic beverages, latest figures show. This comes as a pricing conundrum worsens with business chasing US dollar rates despite government in June formally throwing away multiple currency regime introduced in 2009. The year on year food and non-alcoholic beverages inflation was at 251.94 percent whilst the non-food inflation rate was 143.94 percent. The month on month inflation rate in June 2019 was 39.26 percent advancing 26.72 percentage points on the May 2019 rate of 12.54 percent raising fears that the economy is heading towards hyperinflation.

The hyperinflation was tamed by dollarisation in 2009. While dollarisation improved macroeconomic stability, the economy deteriorated in 2015 with high deficits financed through the issuance of Treasury Bills. Exports steadily rose but Zimbabwe remained generally uncompetitive compared to regional peers due to several factors such as high  overheads. Hyperinflation is when prices of goods and services rise more than 50 percent a month. During hyperinflation prices will also be rising daily. Zimbabwe is facing one of its worst droughts in a decade and this has pushed the price of food commodities up as the economy will now depend on imports. In our view this trend will continue due to low production and the weakening of the Zimbabwe dollar. The current power outages which are now lasting up to 18 hours each day are now pushing production costs as many companies in the manufacturing sector are now relying on diesel which is in short supply. Erratic supplies of fuel across the country are also forcing many to buy the commodity on the parallel market where it is being charged in US dollars. Government’s decision to introduce the monocurrency system which replaced dollarisation will also have an impact on the inflation outlook of Zimbabwe. Treasury also announced its commitment to settle legacy debts following the monetary reform, a development which will make banks run short of their treasury position.

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