BY FIDELITY MHLANGA
FINANCE minister Mthuli Ncube was yesterday taken to task by captains of industry for suspending the production of annualised inflation figures, saying the policy move can trigger rampant speculation.
With inflation hovering around 176%, Ncube last week scrapped publication of annual inflation data during a presentation of the mid-term fiscal statement.
Market watchers raised the alarm, noting that the Treasury boss was attempting to mask Zimbabwe’s rising inflation.
Speaking at the mid-term budget review hosted by Alpha Media Holdings (AMH) in conjunction with Zimbabwe Economic Society, captains of the industry warned Ncube against the move.
Confederation of Zimbabwe Industry chief economist Tafadzwa Bandama said by suspending announcement of annual inflation figures which surged to 175,66% in June, up from 97,85% in May, the effect would be to give fodder to speculators to announce figures that could influence the exchange rate.
“The suspension of inflation figures creates a void in the economy and somebody else is going to occupy that space. Already, we have Professor (Steve) Hanke who has already put the latest figure at 558% year-on-year, even if it may not be correct.
“What happens is that speculators are going to follow him, because he says he is the only game changer in terms of announcing inflation data for Zimbabwe. So that information is fodder for speculators who will run on the exchange. We all know the results of that on the exchange rate,” Bandama said.
Businessman Nigel Chanakira weighed in, saying the annual inflation data actually reveals the harsh reality on the ground.
“What is most worrisome is the graph on annual inflation. I have absolute conviction, Minister, that between us, we can set and have an annual figure so that we are chasing targets.
“I am not fully persuaded that we cannot work out proxies for inflation because that is the reality that is being encountered by the civilians. So, as economists, we don’t look too good. From an optics, we appear hurt somewhat if we do not act and empathise with the public,” Chanakira said.
Ncube, however, took a swipe at the methodology devised by Hanke to measure Zimbabwe’s inflation, saying it was flawed.
“Then on the issue of inflation that if you create a vacuum, someone will fill it. It is okay. I want the vacuum to be filled by the Zimbabwe Economic Society.
You know, I have engaged professor Steve Hanke. I met him at the Carter Institute in April this year. In terms of methodology, the methodology is not correct.
Why? It is based on the price of a security, which is the Old Mutual share price,” he said.
Ncube added: “For those of you who did some finance, the equilibrium price for a security is driven by returns on that security plus the risk premium.
“Therefore, when you use the price of a security to try and translate it into a price of a physical good like tomatoes, how do you get your risk premium? So, you can see that there is a methodical fallacy. The price of security cannot be translated into the price of a physical good.”