ZIMBABWE will miss its key economic targets due to spiralling inflation after the authorities liberalised the foreign exchange market in a desperate effort to restore macro-economic stability, a new report by the Confederation of Zimbabwe Industries (CZI) has shown.
Ahead of the presidential elections, President Emmerson Mnangagwa’s administration was bullish of strong economic growth of around 6.4% in 2023. Experts from organisations such as the International Monetary Fund and World Bank however projected a modest outturn, citing global headwinds.
The month-on-month blended inflation rate increased from 15.7% in May 2023 to 74.5% in June 2023. This translates into a gain of 58.7 percentage points, which is the biggest jump in blended month-on-month inflation since the measure was introduced in 2020.
“This means that in June 2023, Zimbabwe officially entered into hyperinflation, despite the reported inflation figures being weighted,” reads the CZI research note for June.
“However, this should not be surprising to the consumer who witnessed escalation of prices during the month, with ZWL$ prices being adjusted almost on a daily basis.
“Economies can hardly survive hyperinflation and the fact that the main driver of the inflation (depreciation of the parallel market exchange rate) seems to be under control is positive as it means that month-on-month inflation will be expected to take a sudden plunge again in July 2023. However, the damage has already been done on the annual inflation front, as all the set targets are no longer achievable.”
Official figures show that the annual blended inflation rate for the month of June 2023 was 175.8%, gaining 89.2% percentage points from the May inflation rate of 86.5%.
This, the CZI says, means that after some months of staying within double figures, blended annual inflation is starting to spiral out of control again.
“With the first half of the year now gone, inflation policy targets for year-end are now unrealistic. The Reserve Bank of Zimbabwe expected annual blended inflation rate to decline progressively and reach 10%-30% by end of 2023,” the report reads.
“This is definitely not going to be realised as even if somehow the June Consumer Price Index was to remain constant all the way up to December, the end of year inflation would be 105%. This means that annual blended inflation will still be in triple digit figures come December 2023.”
Hyperinflation is characterised by extremely rapid price increases in all goods and services. It occurs when the prices of goods and services rise more than 50% per month.
Zimbabwe is in a dual currency regime and blended inflation is of use for international comparison, but it is of little use to business and economic agents who use both of the currencies and not a blended currency.
Business in Zimbabwe price their goods in ZWL$ or USD, thus publication of ZWL$ and USD inflation is what helps in forming their pricing and costing decisions.