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Inflation back to haunt Zim – BancABC

Inflation back to haunt Zim – BancABC
By Kingsley Kaswende in Harare, Zimbabwe
Thu 20 May 2010, 04:00 CAT

INFLATIONARY pressures are back to haunt Zimbabwe again, financial analysts have said.

According to a research by a commercial bank, BancABC, the inflationary pressures that have emerged have a potential to create a vicious cycle of a price wave that is difficult to break and could result in inflation surpassing 10 per cent by August 2010 from -7.7 per cent five months ago.

The bank says the rise in inflation can potentially scuttle economic recovery prospects.

Annual inflation, which stood at -7.7 per cent in December 2009 increased to -4.8 per cent in January 2010, -0.7 per cent in February and 3.6 per cent in March.

In April, the annual rate of inflation was measured at 4.8 per cent, an increase of 1.4 per cent from the March level.

The development gives a real threat to the five per cent target which finance minister Tendai Biti predicted.

The country had the world’s highest inflation a few years ago but managed to recover from severe inflation by suspending the Zimbabwe dollar, replacing it with the US dollar, South African rand and other regional currencies.

The Zimbabwean government had stopped publishing its own inflation figures in July 2008 when they attained 231 million per cent but independent sources say inflation hit 89.7 sextillion per cent in December 2008 before the local currency was abandoned in favour of multiple foreign currencies.

The research by BancABC found that the current build up of inflation pressures is in part a result of food prices, unjustifiably high tariffs and rate charges and unsustainable employments costs, among others.

“The consumer price Index basket is predominantly made up of food items which have a combined weight of 31.9 per cent and non-food items consisting of water, electricity and gas (16.2 percent); furniture and household equipment (15.1 per cent) and transport (9.8 per cent). The recent inflation surge, spearheaded by food items, has been relentless,” the bank stated.

“Accordingly, the rapid increase in overall inflation has been underpinned by rising prices of food, alcohol and beverages, rent and rates, health, transport, and restaurants and hotels.”

The bank stated that the anarchy related to the operation of utilities institutions, including long periods of electricity load-shedding, the issuance of estimated bills and inflated tariff charges continue to drive the cost of doing business, rendering Zimbabwe a high cost producing country.

“Consequently, the annual inflation rate for house, water and electricity category has been at double digit level, reaching 16.9 per cent in March 2010, thereby further fanning inflation. The impact of wage-related costs is also having a knock-on effect on prices,” it stated.

The bank stated that elevated international oil prices, presently around US $84 per barrel, remain a major risk to inflation adding that high international oil prices impact on the domestic cost of fuel which in turn has a direct effect on transport costs and the rest of the economy.

In addition, concerns with respect to implementation of the Indigenisation Act have potential to brew negative sentiments which can easily feed into the price formation process and hence inflation.

Labels: BANCABC, INFLATION, ZIMBABWE

posted by MrK @ 4:06 AM