Economic policies to determine Zimbabwe inflation

THE economic policies the new Government will adopt will play a major role determining the country's continued ability to register single digit inflation, economic commentators said yesterday. Following the formation of the inclusive Government and the liberalisation of the economy in February 2009, Zimbabwe has managed to maintain the year-on-year inflation not exceeding 5,5 percent.

During the first six months of 2013, year-on-year rate of inflation in the country has been fluctuating between 1,87 percent and 2,98 percent.

Latest figures from the Zimbabwe National Statistics Agency (Zimstat) indicate that inflation shed 0,62 percentage points on the June rate of 1,87 percent to 1,25 percent last month.

"At the moment we cannot predict whether the country will continue recording low inflation levels.

"That will be largely determined by the economic policies that the new Government will come up with," said an economic commentator Mr Trust Chikohora.

In a separate interview, an economist, Mr Innocent Masauti, said although inflation was on a downward trend, he did not see a scenario where it will go down to levels beyond less than 1 percent.

"It is important to consider that the present inflation trend in Zimbabwe is not driven by local micro and macro economic principles.

"And going forward, I don't forsee a situation whereby it will drop to a level beyond less than 1 percent although we have heard of particular countries in the world recording a 0 percent inflation rate.

"Again depending on what economic policies the new Government will come up with, that would determine whether the country will continue with low inflation levels," he said.

Mr Masauti said the incoming Government needed to come up with robust policies to avoid stagflation, which is not good for any economy.

Stagflation, he said, referred to a situation whereby inflation levels off at a certain point and still regarded as high without economic growth characterised by high unemployment levels, among other fundamentals.

Mr Masauti said the new Government should address the challenges in the manufacturing sector to stimulate productivity.

"The Government has to go back to the basics and address the challenges facing manufacturing sector. Capacity utilisation in the manufacturing sector is on very low levels, resulting in the country becoming a net importer."

He said Zimbabwe's economy had the potential to grow on the back of vast resources.

"The inclusive Government failed to address liquidity constraints and old machinery, among others facing the manufacturing sector because it was a marriage of convenience on the contrary to what could have happened if it was a marriage of a lifetime," he said.

Another economist, Mr Peter Mhaka, said the recent weakening of the South African rand against the United States dollar had a knock on effect on the local rate of inflation as Zimbabwe was importing most of the basic commodities from that country.

"The inflation trend on the local scene is not driven by micro and macro economic principles. The downward trend on inflation rate points out to what is happening in South Africa.

"Recently, the rand has weakened against the green back, which means it is now actually cheaper to buy here (locally) than in South Africa thus lowering inflation figures in the country," he said.