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Irony of low inflation, high cost of living

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Zimbabwe’s inflation, once regarded as the highest in the world during the country’s economic meltdown that came to an end in 2009, slowed down after the adoption of the multiple currency regime and formation of the inclusive government.

So high was the inflation, prices would change more than thrice daily.

Back then one would join any winding queue in town hoping for a cheaper, or rather available basic commodity.

In many cases one would realise after enduring the patience of a monument that the winding queue would be for salt and not the scarcely supplied cooking oil.

The use of several foreign currencies, predominantly the United States dollar and the South African rand, reduced the rate of price increases from the last recorded official figure of 231 million % to single digit levels.

Following the government’s inability to keep track with the runaway inflation, independent statistics indicated that Zimbabwe’s highest inflation figure stood at 6, 5 sextillion in November 2008.

An inflation rate is the general increase in prices of goods and services and the falling of the purchasing power.

In his Mid-Term Fiscal Policy announced last month, Finance minister Tendai Biti said Zimbabwe’s inflation compared favourably with those of other Sadc countries, with Malawi accounting for the highest inflation figure of 17,3% in May this year.

Although Zimbabwe’s inflation has been relatively lower than in other regional countries, the state of the country’s uncompetitive manufacturing sector has exposed the economy to “imported” inflation.
Industry is currently operating at 57% capacity and locally-manufactured goods are generally more expensive than imported goods.

Biti is on record blasting local companies for charging “hyper-inflationary era prices” despite acknowledging that the rate of price increases had been slower under the new administration.
Despite the decline in inflation, there has been no respite for ordinary Zimbabweans as the cost of most basic commodities, including rentals, transport and food remain high.

With independent statistics showing that nearly 80% of local supermarkets were stocked with South African products, experts contend that inflationary developments in this country are determined by developments across the Limpopo River.

The African Development Bank in its monthly review for the month of July said annual inflation was at 4% in June 2012 from 2,9% in June 2011, while annual food and non-food inflation reached 4,8% and 3,6% respectively.

“The major factors driving inflation in June 2012 were housing, water, electricity, gas and other fuels (inflation was recorded at 14,1%, driven mainly by rent and rates); communication (12,3%); education (11%); alcoholic beverages and tobacco (6,2%) and restaurants and hotels (6,1%),” the report reads.

The development has led to critics questioning the composition of the basket used to measure inflation.

Confederation of Zimbabwe Industries chief economist Lorraine Chikanya said the bread basket and cost of living, which has generally been rising, should be relooked, an indication that could suggest that figures could be distorted.
The government is projecting year-on-year inflation to close at 5%.

“Another issue that one needs to consider in deciding if inflation is a true reflection of what is on the ground is looking at the composition of the basket and the weighting.

“Standard practice is that the basket is reviewed after a given period of time as we are all aware ZIMSTAT did not have the capacity to do this, but I am positive that it is something that is being worked on,” Chikanya said.

“Just as human nature is dynamic, and changes and adapts to new situations, so must the Consumer Council of Zimbabwe basket in order for it to retain relevance — for example, I have been asked that the basket is said to contain the basic requirements in terms of goods and services for a family of six, but during economic hardships, can margarine be considered a basic necessity of a family?”

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