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Zimbabwe inflation reaches record high since 2012

by Staff reporter
20 Aug 2018 at 05:52hrs | Views
PRESSURE on the parallel exchange rate market continues to pile due to shortage of foreign currency in the economy forcing Zimbabwe's year-on-year inflation rate to reach 4,29 percent last month.

The latest figure on inflation is a record high since 2012.

Figures released by the Zimbabwe National Statistics Agency (Zimstats) last week, show that the country's annual inflation rate rose 1,38 percentage points to 4,29 percent last month from the June rate of 2,91 percent.

The agency also revealed that on a month-on month basis, inflation rose 1,03 percentage points to 0, 98 percent.

"The month-on-month inflation rate in July 2018 was 0,98 percent gaining 1,03 percentage points on the June 2018 rate of -0,05 percent," said Zimstat.

In separate interviews, economic commentators attributed the hastening inflation to the persistent pressure on the parallel market exchange rate created by the shortage of foreign currency.

They said despite the quickening inflation, Zimbabwe's inflation was still not bad if compared to the Sadc region rate which was averaging between 7 and 12 percent.

"The pressure on the parallel market exchange rate has been going up and it's starting to be felt now due to the shortage of foreign currency because most of our goods and even raw materials are imported especially from South Africa and other parts of the world," said an economic commentator, Mr Trust Chikohora.

"When there is pressure on the parallel market exchange rate, it is seen in price increases because even fuel is also affected and we may see that trend as long as the parallel market rate is increasing."

In February 2009, the country adopted a basket of currencies dominated by the greenback as well as the bond notes, a financial instrument which was introduced in 2016 under a $200 million AfreximBank-guaranteed facility.

Although the Reserve Bank of Zimbabwe (RBZ) has pegged and maintained the US dollar-bond note official rate at 1:1, cash shortages have prevailed in a flourishing black market for physical currency, both bond notes and United States dollar notes.

The high appetite for US dollars by companies and individuals continues to propel the exchange rate on the parallel market.

Mr Chikohora said the country needs to address the shortage of foreign currency by reengaging with the international community through re-establishing links with the multilateral institutions such as the International Monetary Fund (IMF) and World Bank.

"We also need to access foreign aid grants and more importantly attracting foreign direct investment to result in huge inflows of foreign exchange.

"The Government has to come up with policies that attract foreign direct investment and improving relations with the international community in order to attract fresh lines of credit from institutions such as IMF and World Bank," he said.

Another economic commentator, Ms Wendy Mpofu echoed similar sentiments adding that, "Inflation rate being at 4,29 per se is not bad when we look at regional averages; it's just that we have been used to very low inflation since we are using the US dollar.

"If we can maintain our inflation rate at those kind of margins (below the average regional rates), it's still not too bad. As to where it would be by year end, that depends on the Government that will be set up in terms of its ability to mend relations with the international community in order to attract foreign direct investment and increase foreign currency inflows."

An economist Dr Gift Mugano said companies were using parallel rates to get foreign exchange maybe through direct use of brokers who go and buy goods on their behalf.

"In that way they get the commodity price at a premium.

"Companies listed on the stock exchange don't go to the parallel market to buy forex but they still appoint brokers who help them to buy forex because it's a common practice they appoint brokers who buy from illegal money changers who price it at high premiums," he said.

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