Business / Economy
'Zimbabwe not experiencing deflation'
11 Feb 2015 at 17:18hrs | Views
Zimbabwe is not experiencing deflation but disinflation, with the sustained reduction in inflation due to price correction in the market, the Reserve Bank of Zimbabwe (RBZ) said Wednesday.
RBZ governor John Mangudya said in his 2015 monetary policy statement that the declining inflation was not a reflection of low aggregate demand in the economy but correction of high prices prevailing in the market after the country adopted multiple currencies in 2009.
"In the case of Zimbabwe, businesses are lowering prices not because of lower demand but because imports are coming into the country cheaper due to the weakening of the major trading partners' currencies against the local unit of account, the U.S. dollar," the governor said.
Zimbabwe's annual average inflation has been on a downward trend since 2012, declining from 3.7 percent in 2012 to 1.6 percent in 2103 and declined further to -0.8 percent in December 2014.
The RBZ governor said the sustained decline reflected the dampening of inflationary pressures on the back of cheaper imports mainly from South Africa and limited access to credit lines by key productive sectors of the economy.
"The disinflation in Zimbabwe is therefore a good development as it increases the consumers' purchasing power," he said.
Disinflation is a decline in the rate of price increase and differs from deflation which is caused by businesses lowering prices in a desperate attempt to get consumers to buy their products.
The governor said the country's inflationary outlook was expected to continue to be influenced by the changes in oil and food prices as well as the South African Rand/U.S. dollar exchange rate dynamics.
South Africa is Zimbabwe's major trading partner and Zimbabwe imports more than 60 percent of its goods from South Africa.
"Broadly, inflation is expected to remain in the negative territory for the greater part of 2015, reflecting the effects of depressed international oil and food prices, weaker currencies against the U.S. dollar and the positive effect of disinflation in the economy," he said.
RBZ governor John Mangudya said in his 2015 monetary policy statement that the declining inflation was not a reflection of low aggregate demand in the economy but correction of high prices prevailing in the market after the country adopted multiple currencies in 2009.
"In the case of Zimbabwe, businesses are lowering prices not because of lower demand but because imports are coming into the country cheaper due to the weakening of the major trading partners' currencies against the local unit of account, the U.S. dollar," the governor said.
Zimbabwe's annual average inflation has been on a downward trend since 2012, declining from 3.7 percent in 2012 to 1.6 percent in 2103 and declined further to -0.8 percent in December 2014.
The RBZ governor said the sustained decline reflected the dampening of inflationary pressures on the back of cheaper imports mainly from South Africa and limited access to credit lines by key productive sectors of the economy.
"The disinflation in Zimbabwe is therefore a good development as it increases the consumers' purchasing power," he said.
Disinflation is a decline in the rate of price increase and differs from deflation which is caused by businesses lowering prices in a desperate attempt to get consumers to buy their products.
The governor said the country's inflationary outlook was expected to continue to be influenced by the changes in oil and food prices as well as the South African Rand/U.S. dollar exchange rate dynamics.
South Africa is Zimbabwe's major trading partner and Zimbabwe imports more than 60 percent of its goods from South Africa.
"Broadly, inflation is expected to remain in the negative territory for the greater part of 2015, reflecting the effects of depressed international oil and food prices, weaker currencies against the U.S. dollar and the positive effect of disinflation in the economy," he said.
Source - Cihan/Xinhua
