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Zim inflation—A case of a dog chasing its tail

As Zimbabwe slides into hyperinflation, there has been mistrust between government and business. Forget the much-hyped Tripartite Negotiating Forum which was revived early this year—prices in Zimbabwe are now rising weekly with some daily.

The manufacturing sector which is operating sub-optimally due to antiquated equipment, high production costs and erratic power supplies is in limbo and cannot match regional peers.

 During a mock survey carried by out by Econometer Global Capital we observed that most businesses are now on survival mode and have adopted the cost recovery pricing model in this inflationary environment. For instance a 900W generator for home use which would cost USD100 was last priced at ZW$2500 at a time the parallel market exchange rate was hovering around 1:19. That has been the case in supermarkets where prices indexed in Zimbabwe dollars are now twice expensive as those in neighbouring South Africa.

This points to an unstable and rising cost structure, frequent repricing of goods and a subsequent decline in the quality of earnings for business.

President Emmerson Mnangagwa recently met local retailers over price hikes but the blame-game prevailed. Manufacturers blamed retailers and vice versa.

 All this points to structural deficiencies in the economy.  Local industry cannot export due to some of the factors alluded above and hence their pricing model has been designed to ensure that they do not trade out of business. Yesteryear memories of consumers becoming bargain hunters, a development that resulted in retailers failing to restock remain fresh. However unlike in the past Zimbabwe’s inflation is not being driven by excessive money supply (notes in circulation) but an unstable currency, government’s fiscal indiscipline and a general lack of confidence.

While doing so, inflation has been heading northwards, tracking foreign exchange movements and price of fuel.

Resultantly buying power has diminished. With low exports, high production costs, this will be a vicious cycle for the economy.

Officially, month on month inflation has slowed down but our analysis shows otherwise. A kilogram of commercial grade beef which would cost USD5 is costing ZWL$120 for the same unit.

In the past the price of a dozen of eggs would track US dollar movements but now low buying power has made this benchmark inaccurate. So in the final analysis, we can conclude that while business is on survival mode, it has also taken two extra steps to ensure that it continues to restock and maintain the going concern status. Authorities and business will not have a convergence point unless the macroeconomic environment is stabilised. Doing so requires Zimbabwe to go beyond the Open for Business mantra and overhaul the business climate for both domestic and foreign investors.

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