ZIMBABWE is the only country in the Southern Africa Development Community (Sadc) that has annual inflation of above 50% so far this year, a situation putting the economy at a disadvantage to its regional competitors in terms of trade.
Information gathered from the Confederation of Zimbabwe Industries (CZI) shows that in January 2022, the country’s inflation hit 61%, followed by Angola at 28%, Zambia (15%), Botswana (11%), Mozambique (8%), Mauritius (7%), South Africa (6%), Namibia (5%), Tanzania (4%) and Seychelles at 4%.
The CZI said this underlines that while imported inflation could be affecting the trajectory, domestic factors are playing a larger role as the pass-through effect would also be expected in other Sadc countries.
High inflation levels put the country at a disadvantage to its regional competitors in terms of trade.
“There is urgent need to reverse the upward trend in inflation as further delays might see the situation getting worse in the following months as inflation expectations take hold due to developments at the global level,” the report reads in part.
The 2022 monetary policy statement has forecast an end-period annual inflation range of 25% to 35% in 2022.
This is on the back of reserve money targeting, open market operations and fine-tuning of the foreign exchange auction market.
The CZI said reserve money targeting is necessary but not sufficient to control money supply growth, hence the central bank must also focus on M1 and M3. M1 is the money supply that is composed of currency, demand deposits, other liquid deposits — and includes savings deposits — while M3 includes currency, deposits with an agreed maturity of up to two years, deposits redeemable at notice of up to three months and repurchase agreements, money market fund shares or units and debt securities of up to two years.
The CZI said the ability to control M1 and M3 will determine whether inflationary pressures will be contained in the outlook.
It said fine-tuning the foreign exchange auction market will only be as effective as how quickly and how comprehensively it is done.
“The target set by the Reserve Bank of Zimbabwe (RBZ) for inflation is quickly slipping away, and there is need for urgent intervention before inflation starts to spiral upwards in the face of external shocks,” it said.
The CZI said the month-on-month inflation linear trend is upward sloping, which is not in line with government’s expectations in inflation containment.
Month-on-month inflation feeds into annual inflation and for the first two months of 2022 average annual inflation was 63.4%.
“This current trajectory will make it difficult if not impossible for the authorities to achieve the set target of 35% annual inflation by end of 2022,” it said.
“Changing the trend requires immediate and not delayed action on the policy correction that will set the path back to the downward trends of 2021. Without immediate policy correction decisions, it is difficult to see how this trend will retreat on its own,” the CZI said.
Year-on-year inflation for February was 66.1% up from 60.6% in January, according to data published by the Zimbabwe National Statistics Agency.
Morgan & Co estimated that inflation will exceed 100% in 2022 and the exchange rate could deteriorate to about ZW$400 per United States dollar by year-end.