Zimbabwe’s month on month inflation has been on a steady increase since August, advisory firm IH Securities said on Wednesday, but warns that if current trend continues annual inflation will end the year around 55-65% against a government projection of 53%.
The market witnessed price increases owing to high fuel costs, transportation shortages, and poor road conditions in parts of the country leading to high transportation costs. In the same vein, the country is experiencing power which is poised to increase the cost of production and services if it remains unsolved.
Also there has been marginal increases in official exchange rates, while parallel market exchange rates are expected to be more than double the official exchange rates, driving much of the price increases on the markets in ZWL terms.
“The rising inflation levels have been attributed to volatility of the parallel exchange rate,” stated IH Securities in its latest monthly snapshot.
Despite a government directive that companies accessing foreign currency on the official auction system must also sell in ZWL at official exchange rates, fuel is sold almost exclusively in US dollars. This negatively affects those earning in ZWL who must source US dollars on the parallel market at high exchange rates.
“In recent weeks there has been strong demand for foreign currency on the auction as well, possibly indicative of a growing economy and therefore activity in industry.”
The central bank has managed to keep money supply growth within the targeted levels with the MPC revising downwards the 20% target growth in reserve money to 10% in an effort to contain inflation growth.
Other measures introduced include increasing the Bank policy rate from 40% to 60%, increasing statutory reserve requirements for demand/call deposits from 5% to 10% and increasing minimum deposit rates for ZW$ savings and time deposits from 5% and 10% per annum to 7.5% and 20%, respectively.
“However, this may be countered by the requirement to fund 2021/22 agricultural inputs,” it said.
“When those funds hit the market there may be further pressure on the exchange rate and this will filter down to inflation.”
IH Securities added that individuals are likely to continue converting RTGS to US dollars to maintain value.-HARARE