Business Reporter
ANNUAL inflation continued on a downward spiral, as the tight liquidity situation in the economy continues to hold the price of goods and services constant. According to the Zimbabwe National Statistics Agency, the annual rate of inflation for November shed 0,05 percentage points to 0,54 percent, meaning that the prices went down by an average 0,54 percent in the 12 months to November 2013.
Monthly inflation for November stood at 0,09 percent after gaining 0,1 percentage points on the October rate, implying price increases averaged 0,09 percent between November and October.
The month-on-month food and non-alcoholic beverage inflation was minus 0,60 percent in November, shedding 0,64 percent percentage points on the rate for the prior month.
Food and non-alcoholic beverages annual rate of inflation, prone to transitory shocks, came in at minus 1,51 percent while non-food inflation stood at 1,58 percent.
The rate of inflation measures the magnitude at which prices of goods and services increase over a given period, usually a month or year. A decrease in inflation does not imply a fall in prices, but simply a slower rate in price hikes.
While it is considered positive that annual inflation has continued to trend downward, economists say Zimbabweans should not be overly excited about this. This is because of the fact that while, overall, the rate of inflation has decreased, there will still be some price increases on selected basic goods and services.
These include selected food- stuffs, transport, health care services, and education and essentials utilities such as water, electricity and accommodation. The minimal increase hits hardest on the low-income earners.
But the overall reduction in the pace at which prices of goods and services are going up in Zimbabwe is a reflection of the tight liquidity situation in the economy.
With millions of people outside gainful employment after the closure of thousands of companies due to difficult economic conditions and salaries low for those still employed, the buying power of the majority of people is diminished. Even for the millions engaged in informal employment, the majority earn enough just to get by, with their expenditure limited to a few basic commodities.
Inflation rate trends in Zimbabwe are a sign of deep-seated economic problems masked by a stable currency and these include low disposable incomes, business inability to make cost induced price adjustments and tight liquidity.
Economist Dr Eric Bloch said that Zimbabwe was experiencing depressed inflation, because the spending power of most Zimbabweans was low. Salaries are low, few companies are running and fewer people are gainfully employed. Government, which is the biggest spender in most economies, also currently has little spending power, with only a budget of way less than US$5 billion this year, as it cannot collect much from taxpayers as their capacity is constrained.
“Any reduction in inflation is positive, but we cannot be overly excited. While inflation is going down, inflation on basic goods and services is much higher,” he said.
South African-based economist Mr Gift Mugano said the continued decline in annual inflation was not exactly a positive trend for Zimbabwe as it reflected low aggregate demand due to the prevailing tight liquidity in the economy.
He added that the scenario was not good for the purposes of attracting investment as potential investors would not invest in an economy heading for deflation, where aggregate demand plummets, prices fall and production drops. An inflation rate of 2 percent to 3 percent is considered reasonable as it reflects demand for goods and services and allows producers to adjust for cost increases. High inflation is, however, bad as it diminishes the value of currency.
At the same time a continued decline in inflation leads to deflation, which is equally bad as it means prices, instead of going marginally up, actually fall as consumers stop buying in the hope their money will buy more in future.
Zimbabwe is facing tight liquidity following the adoption of multi-currency system in 2009 to escape from the destructive force of hyperinflation stalking local currency.
With the economy still frail after a decade-long macro-economic instability, the export capacity of industry is seriously constrained, foreign investment is limited, Diaspora inflows are limited and most international lines of credit blocked.