YEAR-on-year inflation for December 2015 is projected to be -1,87%, deviating from its downward trend, with moderate increases expected, according to an economic barometer relaunched yesterday.
BY VICTORIA MTOMBA
The country has been recording negative inflation since the beginning of the year, which has resulted in many companies being forced to reduce prices, as they try to lure customers.
The economy is facing tight liquidity constraints as well as low aggregate demand due to low disposable incomes.
Speaking at the relaunch of the economic Barometer Special Edition Volume 18, which covers July to September 2015, Zimbabwe Economic Policy Research Unit (Zeparu) executive director, Gibson Chigumira, said they developed a model to project future inflation trends based on the past.
“Based on its inflation forecasting model, Zeparu projects year-on-year inflation in December to have risen by 1,24 percentage points from September 2015. Zeparu projects -1,87% inflation in December 2015,” he said.
The barometer showed that inflation remains negative and is likely to continue to be so due to the appreciation of the US dollar against the South African rand, tight liquidity conditions and weak consumer demand.
Zeparu composite leading indicators index shows that economic activity has been deteriorating from November 2014 to July 2015.
Meanwhile, Chigumira said the fall in commodity prices in the country will affect money supply and the strengthening of the US dollar will quicken the fall of gold prices.
He said commodity prices have experienced significant falls largely as a result of falling of Chinese demand for minerals. The country’s major exports metals gold, platinum and nickel ores have not been spared either.
“The implications of depressed international prices are being felt through both reduced profit for local mining companies and the risk of reduced revenue for government. In addition falling prices will reduce exports, earnings resulting in a loss of foreign currency inflows and a higher current account deficit.This will affect money supply in Zimbabwe,” Chigumira said.
Chigumira said platinum lost close to a third of its value in a year and the metal was subdued compared to the same period last year.
The barometer shows that platinum price declined by 31,2% to average $986 per ounce during the third quarter of 2015 compared to a third quarter in 2014 this was due to
increased production from South Africa and the Volkswagen emissions scandal which brought about fears of reduced demand.
The report shows that gold lost 12,3% of value during the quarter under review and averaged $1,124 per ounce compared to the corresponding period last year.
“The fall in gold price was the result of both the strong performance of the US dollar (which is an alternative investment to gold and thus reduced demand for gold) and the Chinese slowdown. A continued strengthening of the US dollar is likely to lead further falls in the gold price by end of 2015,” the barometer read.
The mining sector has been a major contributor to the Zimbabwe economy since 2009 when commodity prices were favourable.
The sector is expected to be a major contributor to the economy in 2016 according to Treasury.