Zim targets 2-3pc inflation

Source: Zim targets 2-3pc inflation – DailyNews Live

John Kachembere      4 August 2017

HARARE – Zimbabwe is targeting an annual inflation rate of between two
percent to three percent this year, in line with the regional benchmark,
after a two-year deflation streak was snapped in February.

Reserve Bank of Zimbabwe governor John Mangudya on Wednesday said although
inflation is expected to remain in the positive territory throughout this
year, he wants to keep it within the Southern African Development
Community inflation benchmark of between three percent to seven percent.

“I am happy that inflation is now in the positive territory because we
have been in deflation for over two years now and there was a huge risk if
we had remained there (in deflation) we would have descended into
recession,” he said.

Mangudya, however, said the bank will continue to monitor and manage
downside risks to inflation emanating from domestic factors particularly
the pass-through effect of fiscally-induced foreign currency shortages on
premiums and multiple pricing practices in the domestic economy.

Zimbabwe’s annual headline inflation rate, which had been in deflation
since September 2014, moved into positive territory from -0,65 percent in
January 2017 to 0,31 percent in June 2017 as a result of the expansionary
fiscal policy stance which saw fiscal deficit rising to $1,4 billion in
2016.

Mangudya said the deficit – which emanated mainly from drought-related
expenditures, legacy debt and agricultural expenditures – was mainly
financed from domestic sources through the issuance of treasury bills and
reliance on the Reserve Bank overdraft facility.

This increased the quantity of money in circulation.

The central bank governor’s inflation targets are also in line with the
International Monetary Fund and World Bank’s forecast of three percent
this year.

However, international think-tank NKC Research has a more conservative
view, projecting inflation to average roughly one percent this year.

Statistics from the central bank show that year-on-year food inflation
accelerated sharply from -0,30 percent in January 2017, to 1,92 percent in
May 2017.

The surge in food inflation was attributable to intermittent food
shortages before the harvesting period, which began in April 2017, as well
as to production constraints in the food manufacturing industry.

Annual food inflation, however, decelerated from 1,92 percent in May 2017
to 1,82 percent in June 2017, reflecting the increased output of grains.

Presenting his mid-term Monetary Policy Statement Mangudya said the
2016/17 bumper harvest is expected to dampen food prices.

“On account of the good agriculture season, significant price declines
were recorded for bread and cereals, meat, fruit, vegetables, oils and
fats, and milk, cheeses and eggs in June 2017,” he said.

Annual non-food inflation moved into positive territory, increasing from
-0,82 percent in January 2017 to 0,08 percent in April 2017, before
peaking at 0,21 percent in May 2017.

The increase was driven by firming South African rand and international
oil prices.

The recent fall in international oil prices and softening of the rand,
however, induced deflationary pressures which resulted in annual non-food
inflation receding back into negative territory to -0,37 percent in June
2017.

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