Finance Minister Mthuli Ncube yesterday urged business to tie prices to the consumption basket and not the exchange rate because people do not earn salaries to buy United States dollars but goods.
Addressing industry and business at the Zimbabwe International Trade Fair in Bulawayo yesterday, Ncube said: “It is bad economics, very bad economics where you tie price increases directly to the exchange rate.
“Good economics says tie prices around a consumption basket, you don’t earn your salary to go and buy US dollars. So, inflation thinking should be hinged around consumption basket and not US dollars.”
Zimbabwe has been experiencing a price spiral since October last year when the government re-introduced foreign currency accounts.
Inflation soared from 5.4 percent in September to 166 percent in March this year. Some economist say real inflation is about 270 percent.
The exchange rate between the surrogate currency the bond note and the United States dollar which was at par now stands at 4.66 on the black market.
Opposition leader and former Finance Minister Tendai Biti says inflation could reach 400 percent by the end of the year.
Mthuli Ncube plans to reduce inflation to single digit level by year end but he is facing an uphill struggle as business is tailoring prices to the exchange rate on the black market.
Ncube who was supported by Vice-President Constantino Chiwenga said current business practices were unethical.
“We are doing very well on the fiscal front, Honourable VP. Your Government is solvent. We are running surpluses and we have been doing average surpluses of $100 million since September last year when we came in,” he said.
“In January we had surplus of $102 million, February $85.5 million as we had to take into account cushioning of civil servants. In March our surplus doubled to be just about $200 million. So, where is pressure on the exchange rate coming from?
“Before we knew that it came from the fiscus, we were monetising the fiscal deficit and then money supply would grow but now where is the pressure coming from? So, clearly as the VP said, it is speculation and that speculation is not a good idea, we know who is driving it.”
Chiwenga described those wantonly increasing prices as “financial terrorists” and warned them that this was a war they would never win.
Ncube said the government was doing everything to make sure that the value of the local currency, currently known as RTGS dollar was preserved but business must meet the government half-way.
“Our job as government is to make sure that our fundamentals that determine value of a currency are still strong. We are not careless in terms of how we spend and we make sure the value of the currency is preserved but you should meet us halfway,” he said.
The black market rate for the RTGS dollar was today pegged at 4.80 to the US dollar while the interbank rate stood at 3.22 to the greenback.
Ncube said while the country was going through a bad patch, the hardship should not exceed a year.
“We need to go through some period of austerity as we build towards prosperity. But quite clearly you can’t do austerity for three years, that’s bad, do it one year and move on”, he said.
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