Staff Writer 
THE Confederation of Zimbabwe Industries (CZI) has cautioned that achieving the government’s inflation targets hinges on authorities creating sufficient demand for the local currency.
While acknowledging the role of tight fiscal and monetary policies in stabilising ZiG inflation, the CZI emphasised that these measures alone are insufficient without a corresponding increase in ZiG use.
The 2025 budget projects an average month-on-month ZiG inflation rate of below three percent, on the back of the continuation of tight fiscal and monetary controls.
However, the CZI argues that “this can only be achieved if government creates demand for ZiG, as the tight liquidity conditions are not enough to sustain its value.”
The industry body highlighted that the 2025 National Budget acknowledged that there is need to create demand for ZiG by having more tax heads payable in ZiG but no specific measures were announced.
“Under such a scenario, it will be difficult to sustain ZiG inflationary pressures as there will still be no compelling reasons for holders of US$ to sell for ZiG. Thus, unless there are measures to create demand for ZiG, the policy objective of containing ZiG month-on-month inflation below three percent might not be realisable,” CZI said in its latest report.
The introduction of ZiG in April 2024 stabilised local currency inflation in the second quarter of 2024.
Month-on-month ZiG inflation declined by -2,4 percent in May 2024 and averaged 0,0 percent in the second quarter of the year.
However, inflation pressures emerged from August to October 2024, attributable to a surge in parallel market foreign exchange activities, which worsened adverse inflation expectations.
In October 2024, inflation reached a peak of 37,2 percent, which was only about 13 percentage points away from the hyperinflation level.
In the months of November and December 2024, there was an acute shortage of the local currency, curbing the runaway inflation that was threatening to prematurely end the life of the new currency.
In December 2024, the ZiG inflation rate was 3,7 percent, a 33,6 percentage point decline from the October peak of 37,2 percent.
Analysts at Fincent Securities say inflation is expected to remain elevated in 2025, driven by foreign currency exchange rate pressures on the domestic currency.
“Inflation and currency volatility continues, with the ZiG under severe pressure due to low confidence and a widening gap between the official and parallel market rates. Exchange rate pressures further weaken currency management, with the parallel market premium projected to exceed 50 percent in 2025,” Fincent Securities said in its 2025 outlook report.
The firm added that although fiscal and monetary authorities anticipate ZiG inflation to remain stable, with month-on-month rates averaging below three percent and US$ inflation expected to average five percent, it holds a different view. “We believe both ZiG and US$ inflation will remain elevated due to exchange rate pressures. Businesses are likely to adjust prices to align with parallel market rates, while retailers, aiming to protect margins, may increase US$ prices to maintain parity with the implied official exchange rate,” Fincent said.
The World Bank says global headline inflation is forecast to decline to an average of 2,7 percent in 2025-26, broadly consistent with target levels in many advanced economies and emerging markets and developing economies.
The International Monetary Fund expects global headline inflation to decline to 4,2 percent in 2025 and to 3,5 percent in 2026, converging back to target earlier in advanced economies than in emerging markets and developing economies.
