Inflationary pressure to remain

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Inflationary pressures are likely to remain in the near future as a result of external factors and the country’s huge import appetite, a report by Interfin Securities said.

According to Interfin Securities weekly review of the equities market, the local industry was still operating below capacity, which in itself was inflationary. The need to import basic commodities would remain high leading to increased inflationary pressure.

Inflationary pressure is when the price of goods and services in general increases at a higher rate than wages, thus causing a financial strain.

Interfin said this would result in reduced disposable incomes for the local consumer.

“We still maintain the view that inflationary pressures will remain high largely as result of exogenous factors chief among which is the global fuel price and also the global commodity price increases (on) especially soft commodities which will continue to exert pressure on the cost of food globally,” reads part of the report.

“With the reduced disposable income and rising prices of raw materials for manufacturers and rising costs of merchandise for retailers, we still maintain that manufacturing and retail revenues are likely to come under pressure and retailers will not be able to pass on the inflation through prices to consumers.”

Year-on-year inflation continued on an upward trend in August driven by increased costs in transport, alcoholic beverages and tobacco, rising to 3,5% from 3,3%.

Finance minister Tendai Biti recently said, Zimbabwe being a net importer, particularly from South Africa, was bound to be affected by exchange rate volatility between the US dollar and the South African rand.
Presenting the Mid-Term Budget review last month, Biti said while the government had no control over external factors affecting oil prices, there was need to remain cautious to make appropriate fiscal interventions to minimise pressure on imported inflation,

“The rand has been appreciating since January, obviously putting pressure on domestic prices, as more dollars will be needed to import similar quantities of goods from South Africa,” he said.

Turning to the investment climate, Interfin said policy risk in Zimbabwe was more of a perception issue than reality, adding investors avoiding local assets were losing out more than the ones that already have assets in Zimbabwe.

“We also maintain that Zimbabwean assets are significantly undervalued,” reads the report.