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Inflation seen slowing down in October

ZIMBABWE’S central bank expects inflation to start slowing by October and believes current inflationary pressures are a temporary phenomenon despite hitting a 10-year high of 56,9 % in January.

“Yes, inflation has gone up in January, but you also need to understand what drives this inflation. You also need to understand if this inflation is a temporary thing or permanent phenomenon. My take is that the inflation we are witnessing now is a temporary phenomenon,” Reserve Bank of Zimbabwe (RBZ) deputy director for economic research, Nebson Mupunga, said at the Employers Confederation of Zimbabwe breakfast meeting in Harare yesterday.

Month-on-month inflation has been rising by an average of 10% in the last four months, invoking fears of a return to hyperinflation.

Zimbabwe’s inflation peaked at 500 billion percent in December 2008, according to the International Monetary Fund, forcing government to abandon the Zimdollar for mainly the United States dollar in February 2009.

Mupunga said unrestrained money supply growth was behind the latest surge in inflation, and Treasury was cutting down on quasi-fiscal activities.

“What has been driving inflation up to date, I think you have mentioned somehow the factors of money supply? The major source of inflation in the previous government was money supply and the source of money supply was fiscal deficit, something that was acknowledged by the (Finance) minister. That is why he came up with fiscal consolidation,” he said.

According to Mupunga, money supply has gone down from around 47,5% in July 2018 to about 23,7% in December 2018.

“Using our internal model, we have estimated that money supply affects inflation within a period of six to 18 months. So, the inflation that we have been witnessing, actually in response to the money supply, was created months ago. Now what we are witnessing is a significant deceleration in money supply growth. If you look at month-on-month growth on money supply in December, it was -0,7% and we hope that if we are going to maintain that trend, where money supply decelerates in the next six months, we will witness a significant decline in inflation,” he said.

“We expect the annual inflation to be relatively higher until we reach October but that does not mean that prices will be increasing. A good measure we are going to use up to October 2019 are the month on month inflation. If you look on the month-on-month from October 2018 was going downwards from around 16% to 9,2% in November and 9% in December, then in January there was a slight reversal where it went up to 10%.”

source:newsday

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