Zimbabwe consumer prices post first drop in months

Some local consumer prices marginally fell this week for the first time in months as declining costs for foreign exchange offset rising prices after the central bank ditched the fanciful greenback bond note peg.

This comes after Zimbabwe's quasi currency known as bond notes was no longer deemed 1:1 with the trade-weighted US dollar, with the Reserve Bank of Zimbabwe (RBZ) devaluing the bond notes and allowing the market to decide what the prevailing market rate should be.

In his first Monetary Policy Statement release for 2019, the RBZ governor John Mangudya announced that he will establish "an inter-bank foreign exchange market in Zimbabwe to formalise the trading of real-time gross settlement (RTGS) balances and bond notes with US dollars and other currencies on a willing-buyer willing-seller basis through banks and bureaux de change."

This week, the price of 2kg rice dropped from around $7 to $6,50, a bottle of 500ml of still water is now pegged at $0,85 from $1,05, while 500ml fizzy drinks now range around $1,80 from an average of $2.
Other prices have remained stable. In the past months, prices spiralled out of control, leaving most

Zimbabweans unable to afford basic commodities such as bread, mealie-meal, and rice. Confederation of Zimbabwe Industries (CZI) president Sifelani Jabangwe attributed the slight decrease in prices to the access that retailers now have to foreign currency in banks.
"Some of them have managed to get foreign currency from banks which is going at a rate of 1:2,5 and are importing some goods.

"With access to foreign currency, eventually prices are bound to go down and this will make positive contributions towards the economy," Jabangwe said. Veteran economist John Robertson said reductions could cause Value Added Tax (Vat) collections and company profits taxes to go down as well.

"Importers who were paying up to RTGS$4 and are now paying only RTGS$2,5 for each US$ will certainly be passing on lower costs, but the higher fuel prices and the 2 percent tax are also reducing the consumers' disposable income.

"We will see the evidence in the tax revenue figures for the next few months, but we must also expect some wage levels to rise.
"Of special importance is whether tobacco prices are going to be high enough to cover tobacco growers' higher expenses," Robertson said.

This comes as Mangudya said prices should remain at their current levels and or should start to decline in sympathy with the stability in the exchange rate given that the current monetary balances have not been changed.

Mangudya said the RBZ will commit all its efforts to use instruments at its disposal to maintain stability of the exchange rate.
"This is essential to restore the purchasing power of RTGS balances through safeguarding price stability by neutralising pressures emanating from pass- through effects of exchange rate movements," he said.

Confederation of Zimbabwe Retailers president Denford Mutashu said the decrease in prices was due to a decline in consumer demand. He however, admitted that this decline slows the rate of stock turnover against constant or rising costs like employment costs and rentals.

"Price stagnation and in some instances, decline, is due to weakening consumer demand. In some cases, you have someone with a full tank of fuel but failing to afford the daily basics as speculation on fuel availability takes its toll on spending," Mutashu said.

The retailers' president added that the introduction interbank market is a welcome development as it plays a critical role in their line of business. "There is optimism that it will improve access to foreign currency as the market will allocate based on demand and supply.

"If the RBZ can be allowed to play its lender of last resort role, the better, as it brings stability to the financial sector and the economy at large," he said.