Inflation, prices to shoot up – experts

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COMMODITY prices and the country’s runaway inflation are likely to remain high in the coming weeks and months, a top economist has said.
This comes as both business and analysts continue to moan about policy inconsistencies, which characterise the government’s key decisions — thereby eroding confidence, which is badly needed to help turn around the country’s shrinking economy.
In the meantime, many imported goods have started to disappear from supermarket shelves, as a combination of the recent policy measures, the surprise return of the Zimbabwe dollar and the government’s crackdown on retailers still charging for goods in foreign currency begins to bite.
Brains Muchemwa, a local economist, told The Financial Gazette this week that the government’s plans to absorb US$1,2 billion worth of legacy debts would likely result in higher inflation.
He added that prices of goods in the country were also expected to remain high, as retailers and wholesalers tried to preserve working capital.
The situation, Muchemwa said, would only improve “when normalcy and confidence around the mono-currency regime (return of Zim dollar)” improved.
“With interbank above 1:6, it implies that more than Z$6 billion will either be printed or expropriated from treasury to subsidise this cost,” the Oxlink Capital managing director said.
“At whose cost? Why such brazen fiscal imprudence? We will pay through inflation,” Muchemwa said in a tweet earlier in the week.
“As long as we remain import-dependant, demand will remain high and the local currency will continue losing value with inflationary results,” equities analyst Ranga Makwata chipped in.

Other analysts also said debt assumptions like the ones being planned by the government, which had “no clear funding structure”, were by their nature “the most inefficient way of cleaning up private sector balances” — as they would eventually end up as a burden to taxpayers.
The move, they added, could be catastrophic to Zimbabwe’s sickly economy, as the government would be taking on debts that were “almost at par with the country’s revenue streams in a depressed environment”.
However, a banker who requested anonymity said all the recent moves by the government would not necessarily fuel inflation and price hikes.
Instead, he said, they were likely to result in a “controlled” interbank market and more stable prices of goods and services going forward.
“Of course, the real cost will come when they (authorities) decide to settle the debts, and the worst that can happen is to print the Zimbabwe dollar component, which could then create high inflation,” the banker said.
In announcing a set of supporting measures to Finance minister Mthuli Ncube’s statutory instrument (SI) 142 of 2019 which returned the Zimbabwe dollar to the market, RBZ governor John Mangudya directed that all banks “transfer to his institution RTGS/ZW$ balances they have been holding as counterpart funds for foreign currency” — under an exercise in which the central bank would assume these debts at a one-to-one rate.
This strategy, analysts say, would mop up billions of dollars from the local market and, hopefully, continue to subdue and discourage the foreign currency black market that has been in overdrive since late last year.
Meanwhile, parallel market rates and supermarket prices have been relatively stable over the past few days owing to a variety of factors — including the fear of prosecution and a wait-and-see attitude by dealers and retailers.
Trust Chikohora, a former Zimbabwe National Chamber of Commerce (ZNCC) president, said foreign currency rates were also relatively low due to market confusion.
“People who were selling goods in foreign currency were importing in foreign currency. Now they have stopped buying foreign currency because they are not sure if they will be able to sell in foreign currency,” he said.
“So, forex demand has fallen for now,” Chikohora told The Financial Gazette this week, adding that rates were likely to creep up when such businesses begin buying foreign currency to restock.