Rising food prices the next big threat

Rising food prices the next big threat

Source: Rising food prices the next big threat – DailyNews Live

Ndakaziva Majaka      9 May 2017

HARARE – In yet another dose of bad news for long-suffering Zimbabweans, a
local firm has warned that the country’s inflation will continue to rise,
resulting in rising food prices as manufacturing companies turn to the
thriving black market for their foreign exchange needs to import raw
materials.

This comes as Zimbabwe is grappling with an acute shortage of cash, which
has seen overburdened banks giving bagfuls of coins to desperate customers
seeking to withdraw their money.

At the same time, the International Monetary Fund (IMF) has also warned
that the country’s annual inflation could hit a dollar-era record high of
6,6 percent next year, due to rising food prices and election expenditure.

Equities firm, IH Securities (IH), said in a recent report that local
manufacturers had been forced to pass on their rising production costs to
consumers, as they were sourcing the elusive greenbacks from the parallel
market at a premium.

As a result, black market premium cash rates were now affecting food
prices, as manufacturers were passing their costs on to consumers.

“Inflation continues to gather momentum, with the March CPI (consumer
price inflation) gaining 0,15 percentage points on the February figure of
0,06 percent to 0,21 percent, possibly due to the premiums paid by
manufacturers for accessing forex being passed on to the final consumer,”
IH said in its report.

The country’s annual inflation rate broke into positive territory for the
first time in over two years in February this year, gaining 0,71
percentage points on the January 2017 rate of minus 0,7 percent to 0,6
percent.

Until then, the country was in deflation (a period of effective negative
growth) since October 2014.

Despite the introduction of bond notes last year, President Robert
Mugabe’s government has failed to ease the country’s cash shortages, which
have seen banks struggling to beat snaking queues that have lengthened in
recent weeks.

Zimbabwe is deep in the throes of a debilitating economic crisis which has
led to horrendous company closures and the consequent loss of hundreds of
thousands of jobs.

At the same time, economists have said that poverty levels in the country
are skyrocketing, with average incomes now at their lowest levels in more
than 60 years – with more than 76 percent of the country’s families now
having to make do with pitiful incomes that are well below the poverty
datum line.

Economist Godfrey Kanyenze also told the Daily News yesterday that the
demand for cash on the parallel market was fuelling inflation.

“There is demand for cash on the black market so people are heading to
this market. It is not just the US dollars mind you. There is also demand
for the bond notes on the parallel market, and that is why once people
withdraw them they are vanishing.

“You will notice that people are withdrawing bond notes then trading them
on the parallel market to acquire what they view as stronger currencies
for a store of value.

“This in turn, is affecting the price of cash. So, when manufacturers go
to the market for US dollars, they are priced higher due to this demand,”
Kanyenze said.

On his part, economist Prosper Chitambara warned that the local inflation
would shoot up if more bond notes were introduced into the market.

“If the government supplies more bond notes beyond the $200m Afreximbank
facility, inflation could rise faster,” Chitambara said.

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