Price hikes haunt Zimbabwe as parallel market rates soar

10

ZIMBABWE has witnessed a spate of unprecedented price increases for most goods and services after parallel market rates soared and business reacted to the introduction of a two percent tax on money transfers by Finance Minister Mthuli Ncube.
A majority of retailers defend the increases, saying they are doing so to cushion their businesses against losses as they source foreign currency to procure raw materials and pay suppliers from the parallel. The new tax, they said, was eating into their profits. This extra cost was therefore being passed on to consumers.
Yesterday, the US dollar was trading at $3 for transfers. Two weeks ago, the rate had gone as high as $6 for a US dollar, before easing to $2,2.
Prices of basic goods such as cooking oil, sugar, meat, rice, soap, toiletries and bread are spiralling out of control due to a currency crisis precipitated by foreign currency shortages.
Two litres of cooking oil is being sold for $3,80, up from $3,00. A two-kilogramme packet of rice now costs up to US$3,90, from about US$2,50 while a two-kilogramme pocket of sugar now retails at about US$3 from US$2,00. Two litres of cordial drinks now cost $4,90 per bottle, from $3.
The price of chicken cuts has risen from around $6 to between $9,50 and $10,00 for a 2kg pocket, while a kilogramme of beef now costs as much as $9,00 in most retail outlets, from about $6,80.
The price increases will worsen consumers’ woes because disposable incomes have always been under pressure due to a combination of poor salaries, high unemployment and the fact that Zimbabwe is a high cost producer.
Public transport operators have also increased fares by an average 50 percent, depending on the route.
Even as prices have been spiralling out of control, commodity shortages have become more pronounced, with a number of retailers running out of some essential goods.
“The parallel market is unsustainably high and has decimated confidence. Prices have been going up while margins are eroded,” Denford Mutashu, president of the Retailers Association of Zimbabwe, said.
Gift Mugano, an economist, said price increases were a result of the shortage of foreign currency on the market and government’s failure to balance imports and exports. He said government and companies were sourcing foreign currency at a premium on the parallel market mostly to import raw materials and finished goods.
“Companies cannot absorb all those costs and therefore pass the biggest chunk to the consumer. Some (retailers) also take advantage of the situation to increase their prices unjustifiably,” he said.
Zimbabwe relies heavily on imported goods mainly from South Africa and produces very little domestically. Some retailers have also become accustomed to making huge margins due to the high cost of doing business and the desire to make super profits.
Industry and Commerce minister Mangaliso Ndhlovu recently blasted retailers who were increasing prices of goods, saying the hikes were illegal as there was no justification other than profiteering and warned them to stop.
The minister was responding to calls by consumers who have been on the receiving end as there was an unexplained increase of most goods in shops and supermarkets throughout the country in the past week.
“The price hikes are not justified at all. People ride on speculation and that is really uncalled for. I urge the retailers to reverse their prices,” he was quoted saying.
The minister said that manufacturers had not increased their prices to justify price hikes by the retailers.
The increases are happening as Zimbabwe’s annual inflation rose to 5,39 percent in September from 4,83 percent recorded in August, due to the general rise in prices of goods and services in response to soaring parallel market rates, the Zimbabwe National Statistics Agency (Zimstats) said on Monday.
The figure is highest since the economy was formally dollarised in February 2009. Before that the highest rate of inflation recorded in the dollarisation era was 5,3 percent in May 2010.
Month on month, the inflation rate in September 2018 was 0,92 percent, gaining 0,53 percentage points on the August 2018 rate of 0,39 percent.
This means that prices as measured by the all items Consumer Price Index (CPI) increased by an average rate of 0,92 percent from August 2018 to September 2018.
“The month-on-month food and non-alcoholic beverages inflation rate stood at 1,05 percent in September 2018, gaining 0,43 percentage points on the August 2018 rate of 0,62 percent. The month-on-month non-food inflation rate stood at 0,85 percent, gaining 0,57 percentage points on the August 2018 rate of 0,28 percent. The CPI for the month ending September 2018 stood at 101,97 compared to 101,04 in August 2018 and 96,75 in September 2017,” said Zimstats.
Some critics, however, said the inflation rate was higher than the 5,39 percent announced yesterday with companies increasingly relying on internally generated inflation data.
Economist Trust Chikohora said the recent wave of price increases was a result of hard currency shortages.
“The US dollar is now scarce and not much is being produced locally. As a result, companies are converting their bond notes to US dollars at a higher rate. They have to recover those costs along the chain. The end user is the one that feels the pinch,” he said.
newsdesk@fingaz.co.zw