Surge in prices exposes profiteering businesses

THE recent surge in prices witnessed across a range of basic products is an indication of attempts at "profiteering" by businesses taking advantage of firm demand despite the strain of Covid-19.

Instances of significant price hikes have been noted on a number of key products including meat, bread, cooking oil, rice, soap and washing powder, despite low monthly inflation and stable exchange rate.

Zimbabwe's annual inflation rate eased to 401,66 percent in November from 471,25 percent the prior month, according to figures released by the Zimbabwe National Statistical Agency (Zimstat).

Zimstat said the monthly rate increased by 3,1 percent from 4,37 percent a month earlier. Concerns have been raised amid indications that businesses have been hiking prices by margins far higher than the prevailing monthly inflation, even amid projections of lower inflation in 2021.

The same culprits are getting forex at a reasonable auction rate of around $81,3/US$1, the Reserve Bank of Zimbabwe said, but charge for goods and services using exchange rates prevailing on the parallel market.

Consumer bodies are on record questioning incessant price increases at a time when authorities have been commended for reining in exchange rate volatility, which also appeared to bring inflation under control. Reserve Bank of Zimbabwe (RBZ) governor Dr John Mangudya said recently, businesses are getting away with price increases in recent weeks and months, because of strong demand.

Notably, though, the central bank chief said the ability of businesses to still attract buyers despite the elevated prices against presumed low disposable incomes, was evidence people had money.

"The economy is not doing badly; the reason why businesses are increasing prices is that people have money. If people did not have money, they would not increase prices, therefore, the business sector's response has been to increase prices," Dr Mangudya said.

He, however, noted that businesses should behave responsibly to ensure that the benefits of the stability prevailing in the economy trickles down to consumers, the majority of whom are low-income earners.

"Unfortunately, businesses in Zimbabwe were used to high mark ups and the price increases are a continuation of the high mark ups. For example, a bag of cement in Zambia is between US$6-US$7.

"In Zimbabwe, it's about US$8 to U$10 per bag, for the same cement and same companies. "If it was not supported by income, the prices would be lower and demand would (also) go down," he said.

Dr Mangudya said there was need to support production of goods and services to match the level of income and liquidity in the domestic economy. However, the central bank chief said efforts were underway to correct fundamentals, stressing the country remains in a transition.

The bank says it will look at the possibility of reviewing its bank policy rate, which guides market lending interest rates, with a view to reduce it and lower the cost of money to support production, in the new year.

The bank policy rate currently stands at 35 percent, after it was more than doubled from 15 percent in October 2019.

The policy rate had earlier been increased from 15 percent to 50 percent in June 2019 and then 70 percent in October 2019, before the bank policy rate was cut to 35 percent.