News / Local
Price hikes unavoidable,imminent
03 Mar 2017 at 07:29hrs | Views
ZIMBABWEANS should brace for more price increases this year as manufacturing sector output remains depressed while exports sag, Zimbabwe Independent reports.
The economy is this year expected to move into positive territory largely as a result of the bond notes, whose value is expected to depreciate against the US dollar forcing consumers to pay more for products, most of which are imported.
The Consumer Council of Zimbabwe (CCZ) recently said prices of basic commodities went up due to fluctuating fuel prices and the impact of SI 20 which imposed a 15% vat on all meat products and cereals.
The cost of living, as measured by the CCZ's low income urban earner monthly basket for a family of six increased by 2,17% to US$590,52 at the end of January 2017, from US$577,97 in December 2016.
"Our current view sees a gradual increase in the uptake of bond notes by consumers due to the fact that there are few alternatives, in addition to pressure and incentives from government. At the same time, the bond notes will gradually depreciate in value against the US dollar, which will add upward pressure on inflation," regional research unit NKC African Economics (NKC) said.
"We currently predict that inflation will average around the 1% level this year. That said, an acceleration in the process outlined above, as a result of increased bond note printing by the central bank, could see inflation exceeding our current projection. The latter likely explains the International Monetary Fund's forecast that inflation will move to an average level of 4,59% in 2017."
Economist Brains Muchemwa said the worsening US dollar cash position has precipitated the emergence of a parallel economy that has been pricing the cash shortages.
"Resultantly, the general price levels have started increasing notwithstanding the continued depressed economy," Muchemwa said.
"Therefore, the thinking by policymakers that the expected upturn in inflation is on account of the recovery of the domestic economy is very erroneous, misleading and should never be considered in positive light. Rather, the policymakers should be more worried about curtailing all unproductive sources of broad money growth to ensure that the parity between bond notes and the US dollar is maintained, added Muchemwa.
Rising inflation, economist John Robertson said, will see unions asking for higher wages that make Zimbabwe even less competitive that it already is.
"It can lead to wage demands that can make factories fail. People can choose to import rather than buy locally and this is not good because we are already uncompetitive," said Robertson.
"There will be a further shrinking in buying power if companies fail because people lose their jobs because anything depends on having a job and a steady income, but these conditions are not conducive for a steady income," added Robertson.
This comes after Zimbabwe's statistical agency ZimStat reported consumer price index (CPI) deflation eased marginally in January, with a 0, 23% month on month increase in the CPI leading to a headline print of -0,65% year on year, up from -0,93% year on year in December.
The ZimStat figures come on the heels of central bank governor John Mangudya's projections inflation will move into positive territory in 2017 for the first time since September 2014, driven by an increase in global oil prices and a rebound in the local economy.
NKC said bond notes could be a major factor in driving prices up.
"Upward price pressures could potentially be driven by the rise in the cost of goods and services (mainly bread, cereal, seafood and oils) as a results of US dollar shortages," said NKC, adding "the bond notes issued by the apex bank may be a factor in this regard".
NKC said while bond notes are mostly used for domestic commerce, traders still require US dollars to procure goods from abroad. This has lead certain traders to place different price tags on goods dependent on the currency used to pay for the item, with bond note prices already higher for the same product due to low confidence in the unit and the realisation by consumers and traders that these notes are not easily interchangeable for US dollars on a par basis through official channels.
The research and advisory firm further said many Zimbabweans are also resorting to the black market, paying a premium of up to 25% to get US dollars. The premium, said NKC, is absorbed by consumers through final goods and service price increases.
While Zimbabwe aims to focus on production to normalise inflationary pressures, its hands are tied given the severity of the liquidity crisis and the slow uptake of the bond notes, NKC said.
"The government continues to encourage more widespread usage of the notes through directing businesses not to discriminate against payments made in bond notes. However, certain businesses are forced to charge higher prices when payments are made using bond notes to compensate for potential losses when having to acquire US dollars on the black market to restock shelves," said NKC.
The economy is this year expected to move into positive territory largely as a result of the bond notes, whose value is expected to depreciate against the US dollar forcing consumers to pay more for products, most of which are imported.
The Consumer Council of Zimbabwe (CCZ) recently said prices of basic commodities went up due to fluctuating fuel prices and the impact of SI 20 which imposed a 15% vat on all meat products and cereals.
The cost of living, as measured by the CCZ's low income urban earner monthly basket for a family of six increased by 2,17% to US$590,52 at the end of January 2017, from US$577,97 in December 2016.
"Our current view sees a gradual increase in the uptake of bond notes by consumers due to the fact that there are few alternatives, in addition to pressure and incentives from government. At the same time, the bond notes will gradually depreciate in value against the US dollar, which will add upward pressure on inflation," regional research unit NKC African Economics (NKC) said.
"We currently predict that inflation will average around the 1% level this year. That said, an acceleration in the process outlined above, as a result of increased bond note printing by the central bank, could see inflation exceeding our current projection. The latter likely explains the International Monetary Fund's forecast that inflation will move to an average level of 4,59% in 2017."
Economist Brains Muchemwa said the worsening US dollar cash position has precipitated the emergence of a parallel economy that has been pricing the cash shortages.
"Resultantly, the general price levels have started increasing notwithstanding the continued depressed economy," Muchemwa said.
"Therefore, the thinking by policymakers that the expected upturn in inflation is on account of the recovery of the domestic economy is very erroneous, misleading and should never be considered in positive light. Rather, the policymakers should be more worried about curtailing all unproductive sources of broad money growth to ensure that the parity between bond notes and the US dollar is maintained, added Muchemwa.
Rising inflation, economist John Robertson said, will see unions asking for higher wages that make Zimbabwe even less competitive that it already is.
"It can lead to wage demands that can make factories fail. People can choose to import rather than buy locally and this is not good because we are already uncompetitive," said Robertson.
"There will be a further shrinking in buying power if companies fail because people lose their jobs because anything depends on having a job and a steady income, but these conditions are not conducive for a steady income," added Robertson.
This comes after Zimbabwe's statistical agency ZimStat reported consumer price index (CPI) deflation eased marginally in January, with a 0, 23% month on month increase in the CPI leading to a headline print of -0,65% year on year, up from -0,93% year on year in December.
The ZimStat figures come on the heels of central bank governor John Mangudya's projections inflation will move into positive territory in 2017 for the first time since September 2014, driven by an increase in global oil prices and a rebound in the local economy.
NKC said bond notes could be a major factor in driving prices up.
"Upward price pressures could potentially be driven by the rise in the cost of goods and services (mainly bread, cereal, seafood and oils) as a results of US dollar shortages," said NKC, adding "the bond notes issued by the apex bank may be a factor in this regard".
NKC said while bond notes are mostly used for domestic commerce, traders still require US dollars to procure goods from abroad. This has lead certain traders to place different price tags on goods dependent on the currency used to pay for the item, with bond note prices already higher for the same product due to low confidence in the unit and the realisation by consumers and traders that these notes are not easily interchangeable for US dollars on a par basis through official channels.
The research and advisory firm further said many Zimbabweans are also resorting to the black market, paying a premium of up to 25% to get US dollars. The premium, said NKC, is absorbed by consumers through final goods and service price increases.
While Zimbabwe aims to focus on production to normalise inflationary pressures, its hands are tied given the severity of the liquidity crisis and the slow uptake of the bond notes, NKC said.
"The government continues to encourage more widespread usage of the notes through directing businesses not to discriminate against payments made in bond notes. However, certain businesses are forced to charge higher prices when payments are made using bond notes to compensate for potential losses when having to acquire US dollars on the black market to restock shelves," said NKC.
Source - Zimbabwe Independent
