Zimbabwe is the only country in the Southern African Development Community with negative inflation and this is largely because of the deflating effects on food and non-food prices and waning aggregate demand due to significant externalisation taking place in the country, Central Bank governor John Mangudya said last week.
He said last year some $684 million was externalised by individuals and $1.2 billion by firms.
Zimbabwe’s exports only earned the country $2.5 billion while imports gobbled $5.5 billion.
Below is the extract on inflation development from Mangudya’s monetary policy statement:
Reflecting the constraining effect of tight liquidity conditions, inflation has remained in the negative territory since the fourth quarter of 2014. In this regard, annual headline inflation decelerated from -1.3% in January 2015 to a lowest rate of -3.3% in October 2015, before accelerating slightly to -2.5% in December 2015. Annual headline averaged -2.4% for the period January to November 2015.
The persistent negative inflationary mode is underpinned by the continued deflating effects on both food and non-food prices, against the backdrop of waning aggregate demand due to significant externalization taking place in the country.
The slowdown in food inflation experienced in 2015 was mainly driven by the fall in prices of bread and cereals; meat; vegetables and oils and fats sub-categories. Other sub-categories that contributed to the decline in food inflation include milk, cheese and eggs; fish and sea food, and non-alcoholic beverages. Regarding non-food inflation, declines in housing, water, electricity, gas and other fuels; furniture, household equipment and maintenance; transport and communication contributed to the negative rate.
In view of these developments, Zimbabwe remains the only country with negative inflation in the SADC region.
As previously alluded to, the Bank is committed to addressing negative inflation by plugging leakages of liquidity from the economy. During the course of 2015, for example US$684 million was externalized by individuals for various purposes that include donations, investments, account transfers etc. In addition, US$1.2 billion export sales proceeds were externalized by firms. Circulating this liquidity within the national economy has a great multiplier effect and has a positive contribution to boosting aggregate demand.
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