RBZ talks up blended CPI

 THE Reserve Bank of Zimbabwe (RBZ) has come to the defence of the country’s recently adopted blended consumer price index (CPI) — which has faced considerable opposition — saying figures derived from the measure send better signals to investors.
The country’s statistics agency, ZimStat, switched to a blended CPI earlier this year, abandoning a ZWL CPI that had served as the official baseline since 2019.
“Inflation can also send wrong signals to the economy. I can give you an example, we have seen schools adjusting fees, citing that inflation is very high, but they were adjusting US$ fees, then we say which inflation are you talking about?
“So, it’s a signal effect because everyone will say there is inflation in Zimbabwe and adjust prices in US$,” RBZ’s economic research division deputy director, Nebson Mupunga, told The Financial Gazette recently.

“We know from our computations that prices in US$ are stable, even internationally, although there is inflation it’s not to the extent of adjusting prices. The weighted inflation was adopted mainly for signalling purposes because we want to send correct signals even to the investing community and outside,” Mupunga said.
“People will be asking how do you survive in an economy with inflation of more than 200 percent because in a normal mono currency economy, that kind of inflation will not be sustainable…”
However, critics of the blended inflation method, which include the Confederation of Zimbabwe Industries (CZI), say it does not give a fair picture of inflation in the economy.
The business-member organisation has resorted to producing its own inflation estimates, which place the rate higher than ZimStat’s figures.
Business has also warned that the country’s change from a ZWL CPI to a blended one threatens to damage confidence in the domestic currency and contradicts Harare’s professed commitment to de-dollarisation.
Imara Asset Management (Imara) recently said that the new benchmark has fundamental statistical errors as it assumes smooth portability between ZWL and the US dollar.
“Inflation remains currency specific and you do not blend pricing of goods or services. Needless to say, blended inflation will naturally be far less than ZWL inflation, which of course is why the authorities are recommending its use,” Imara chief executive John Legat said in a recent note.
He said it will make accounting for inflation much more difficult and worthless than it used to be.
Economics professor Gift Mugano is also against the change to blended inflation reporting as he recently said it is a sign that government will fail to bring down inflation this year.
“It’s rigging inflation. It’s a sign that the government won’t be able to bring down inflation this year.
“So, the only way of avoiding exposing themselves as having failed is to have blended inflation where automatically it will come down because they are going to be using a weighted average,” he said.
In its latest blended inflation statistics, ZimStat said month-on-month inflation was 74,5 percent in June, after gaining 58,8 percentage points on May’s rate.
Annual inflation hit three digits to 175,8 percent from 86,5 percent recorded in the previous month.
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