'Black market fuelling inflation'

THE Reserve Bank of Zimbabwe (RBZ) has blamed widening exchange rate premiums on the alternative market for stoking inflation which has in turn fuelled increases in prices of goods and services since July this year.

Economists believe three key factors have driven the fast increase in inflation in Zimbabwe and these include general rise in global inflation, growth in money supply and the widening parallel market rate.

Commenting in its October monthly economic review, the bank said inflation increased to 6,4 percent in October 2021 from 4,73 percent in September 2021, driven by rises in both food and non-food inflation.

Monthly food inflation surged from 4,82 percent in September 2021 to 7,56 percent in October 2021, following increases in prices of all food sub-categories, led by bread and cereals, vegetables and meat.

Non-food inflation also increased from 4,67 percent in October to 5,56 percent in October 2021, spurred by rises in costs of transport and miscellaneous goods and services.

Zimbabwe's inflation had been on a rapid decline for most of this year, touching a low of 56 percent in July this from a post dollarisation record of 837,5 percent 12 months earlier.

The southern African country has battled sharp increases in inflation, the second time within two decades, since scrapping a US dollar based currency regime adopted in 2009, in February 2019.

"The rise in foreign exchange premiums on the parallel market has partly accounted for the rising monthly inflation since July 2021," the RBZ said in its latest monthly economic review.

The disparity between the auction exchange rate at $108/$1 and the black market rate, which has continued to widen unabated, has risen to nearly 60 percent, from 20 percent previously.

Economist Eddie Cross recently blamed the central bank's management of the auction system, saying delays between submission of bids and disbursements of forex, forced businesses to go to the black market.

Further, registered companies have fuelled demand for forex due to delays in disbursements, which resulted in the auction foreign currency blacklog reaching nearly US$200 million.

The apex bank said though recently that it had started working on clearing the backlog following commitments made by the Treasury to deal with outstanding but approved bids.

Annual inflation accelerated to 54,49 percent in October 2021, from 51,55 percent recorded in September 2021. This was due to increases in both food and non- food inflation.

Food inflation increased from 54,42 percent in September 2021 to 61,35 percent in October 2021. The increase in producer prices for grain as well as the global rise in food prices, in large part, contributed to the rise in food inflation.

Non-food inflation increased to 49,81 percent in October 2021, from 49,48 percent in September 2021.

Inflation resurfaced during the last two months and will close the year at 60, 74 percent,  latest figures from the Zimbabwe National Statistical Agency show, compared to 348,39 percent in December last year.

Economist Eddie Cross said Zimbabwe was not alone in terms of general rise in inflation with many parts of the world, including the US and Europe, also seeing record increases in prices.

Cross also attributed Zimbabwe growing inflation to significant growth in money supply, which he said remains unexplained at this point in time.

Broad money stood at $417,56 billion in October 2021, an increase of 145,95 percent compared to the money stock in October 2020.

The annual growth in broad money, largely reflected increases of 179,32 percent, 246,62 percent and 211,68 percent in net claims on the Government, public non-financial corporations and credit to the private sector, respectively.