Policymakers this week moved to steady nerves in Zimbabwe’s fragile markets, insisting that even a violent oil shock triggered by the United States-Iran conflict will not break the country’s hard-won disinflation path.
The assurance came as global crude markets reeled from a war that has disrupted flows through a strategic artery handling roughly 20% of world oil supply.
Prices surged by as much as 50% at the peak of the crisis three weeks ago.
Although they have eased, the prices remain 15% to 20% above pre-war levels, keeping pressure on fuel-dependent economies such as Zimbabwe.
The shock has already filtered through. Fuel prices rose by up to 27% last week, pushing petrol to around US$2,17 per litre and diesel to US$2,05 — among the highest in the region — triggering immediate cost pressures across transport, industry and households.
But in response to questions from the Zimbabwe Independent, Reserve Bank of Zimbabwe (RBZ) governor John Mushayavanhu said the impact would be contained.
“The Reserve Bank acknowledges that as a net importer of fuel, Zimbabwe is susceptible to global commodity price shocks,” Mushayavanhu said.
“The recent uptick in international oil prices is transmitted to domestic inflation through direct, indirect and second-round effects. We anticipate a transmission lag of approximately two to three months, after which the impact typically begins to dissipate.
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“Despite these pressures, our forecasts suggest that the fuel shock will result in a deviation of no more than two percentage points from our initial projections. Consequently, our baseline forecast remains firmly anchored within the single-digit range.”
Zimbabwe only recently achieved a key monetary milestone, with annual inflation falling to 3,85% in February after months of tight policy and relative exchange rate stability. Monthly inflation had hovered near 0%. It represented the first sustained period of price stability in decades.
The latest fuel shock now represents the first major external test of that stability.
Economists warn that a sustained rise in oil prices could quickly become a drag on growth, raising production costs, eroding disposable incomes and complicating monetary policy. For central banks, energy-driven inflation presents a difficult trade-off: tightening policy risks choking growth, with easing risks fuelling price instability.
Zimbabwe faces a sharper version of this dilemma. Fuel is a critical input across transport, agriculture, mining and manufacturing, meaning price increases cascade rapidly through the economy.
The central bank, however, is drawing a firm line between temporary price shocks and structural inflation risks.
“It is critical to distinguish between cost-push volatility and structural inflation,” Mushayavanhu said.
“The Reserve Bank’s primary objective remains the regulation of the monetary base. Experience both globally and domestically confirms that sustained inflation is driven by excessive money supply growth.”
He said the RBZ would maintain a tight policy stance to prevent the fuel shock from triggering a broader inflation spiral.
“By maintaining a restrictive monetary policy stance and ensuring money supply remains under strict control, the Reserve Bank prevents temporary price shocks from evolving into a self-fulfilling inflationary spiral,” he said.
However, authorities remain alert to downside risks.
“Should the situation in the Middle East persist and oil prices continue to rise, there is potential for inflation expectations to become de-anchored,” Mushayavanhu warned.
“The Reserve Bank of Zimbabwe stands ready to use its monetary policy tools to ensure that inflation does not go out of control.”
He added that policy would remain tight for the foreseeable future.
“In this context, the Reserve Bank will continue with a hawkish stance until inflation has durably remained benign.”
Stevenson Dlamini, an economics lecturer at the National University of Science and Technology, said the fuel shock was already exerting pressure on both the exchange rate and policy decisions.
“We can expect a measured approach that weighs both inflation control and growth considerations,” Dlamini said.
Zimbabwe’s Monetary Policy Committee has already flagged a near-term inflation uptick, projecting higher monthly inflation between March and May before a return to stability from June.
For an economy that has only just broken a three-decade cycle of high inflation, this is not a minor fluctuation but the first real test of whether the country’s disinflation is durable or merely situational.
The driver is fuel price increases feeding directly into the cost structure of the entire economy.
Across the globe, central banks are confronting a renewed inflation threat triggered by the same conflict. From the United States to Europe and Asia, policymakers are increasingly cautious as surging energy costs threaten to delay interest rate cuts — and in some cases force fresh tightening.
The US Federal Reserve, the European Central Bank and the Bank of England are all expected to hold rates for now, assessing how far the oil shock will feed into consumer prices and growth. Much depends on how long the conflict lasts, but memories of the 2022 inflation surge following Russia’s invasion of Ukraine remain fresh, leaving policymakers wary of repeating the same mistakes.
