Mangudya clashes with World Bank

RESERVE Bank of Zimbabwe (RBZ) governor John Mangudya yesterday clashed with the World Bank representatives as he vehemently disputed their projected annual inflation rate.

This played out at the launch of the World Bank's third economic update for Zimbabwe titled Overcoming Economic Challenges, Natural Disasters and the Pandemic: Social and Economic Impacts, wherein it predicted the annual inflation rate to slow to 86% by year-end.

In the update that reviews developments in 2019 and 2020 and emerging trends in 2021, World Bank country economist Marko Kwaramba said the bank predicted the inflation rate to fall to 86%.

The inflation rate for the month of May stood at 161,91%.

"We have observed the various policies that have been taken and the stability that has been felt, not taking into account what has been happening in the past two weeks or past week, but so far our projection for inflation is 86%," Kwaramba said.

"Inflation has been slowing as far as we have seen since up to May and we expect that in 2022 inflation will reach around 22%."

However, during a question-and-answer segment, Mangudya disputed the bank's figures saying given that the annual inflation rate last month was 162%, the figure of 86% could be reached before year-end.

"In terms of inflation, the 86% that he (Kwaramba) spoke about is quite out of our projections because as the numbers show, in May we had 162%. We expect June inflation of 105% and July to be below 55%. Why? Because of the ‘base effect'," Mangudya said.

The base effect refers to the effect that the choice of a basis of comparison or reference can have on the result of the comparison between data points.

"Our highest inflation was 837% in July 2020 and because of the base effect to suggest that we are going to be 86% by the end of the year is a bit out of projection so you may wish to reconsider the numbers, especially if you talk of July being the highest inflation, last year," he argued.

"I am not very sure which model you used as the World Bank, but it may be necessary to look at that figure. We do believe at the end of the year, December, our yearon-year inflation will be between 15% and 22%, but otherwise thank you for the presentation."

Over the past few months, the Zimbabwe National Statistics Agency (Zimstat) has come under fire from experts over how it collects its inflation data.

As a result, Zimstat was forced to release a statement last month explaining its inflation figures considering that prices and the cost of living did not tally with the agency's data.

Defending the World Bank's projections, the bank's senior chief country economist Stella Ilieva said they base their projections on annual average inflation compared to the RBZ's end-of-year inflation that does take the base effect into consideration.

"One point on the question posed by the governor (Mangudya) on inflation is that what we show is annual average inflation. I think what the RBZ estimates are end-of-year inflation or year-on-year inflation," she said.

"In a way, average annual inflation is affected by base effects, otherwise we do not have significant differences in how we project monthly inflation rates."

In May, Zimstat stated that it undertakes a consumer price survey and uses purposive or judgmental sampling of outlets in both urban and rural areas.

The survey covers more than 4 000 retail outlets in both rural and urban areas.

Among them are supermarkets, general dealers, departmental stores, liquor stores, open markets like Mbare farmers market, fuel service stations and garages, hotels and restaurants, fast foods outlets, bus and taxi companies, hair salons, pharmacies, communication service providers, government and private hospitals as well as rural and urban district councils.

The prices of goods and services from these outlets are collected over a five-day data collection period based on 35 000 price observations and tallied on the 15th day of the month which is used to derive the inflation results.