One of the things that has baffled me about Zimbabwe is the rate of inflation which fell into negative territory in February. But what has been worrying me most is whether Zimbabwe is experiencing deflation, or it is merely going through disinflation.
I am not an economist but a close friend of mine who is a financial reporter told me that some economic fundi had told him that the country was going through disinflation and not deflation.
This was like playing around with my mind, but I went out to check the difference.
According to Wikipedia, which some people say you should not rely on too much, “deflation is a sustained decrease in the general price level (negative inflation rate) resulting in a sustained increase in the real value of money and other monetary items. Money and other monetary items are worth more all the time during deflation as opposed to being worth less all the time during inflation”.
If this definition is correct, then I bet that this is not what is happening in Zimbabwe. Yes, money is hard to get but has its value really appreciated over the past 12 months? Would we be having salarygate?
Besides, when I checked the statistics released by the government, the rate of inflation actually went up three times in the 12 months from May last year to April this year -in August last year, in January and in April. So, in my layman’s language, there was no sustained decrease.
A look at the consumer price index also shows that prices actually went up four, if not five times, during the 12 months. They went up in September, in November, in January, in February and probably in April. I could not get the CPI for April but inflation for April was up on March.
So, in my layman’s language, if Zimbabwe is not going through deflation, what is it going through? Disinflation!
Once again, Wikipedia describes disinflation as: “a decrease in the rate of inflation – a slowdown in the rate of increase of the general price level of goods and services in a nation’s gross domestic product over time”.
“For example if the annual inflation rate for the month of January is 5% and it is 4% in the month of February, the prices disinflated by 1% but are still increasing at a 4% annual rate. Again if the current rate is 1% and it is –2% for the following month, prices disinflated by 3% i.e. [1%–(-2)%] and are decreasing at a 2% annual rate,” Wikipedia says.
It adds: “If disinflation continues until the inflation rate is zero, the economy enters a deflationary period, with decreasing general prices on all goods and services produced…… Disinflation is reduction in the inflation rate. Prices are still rising during disinflation, but at a lower rate. The general price level still rises, but at a slower rate resulting in a lower rate of real value destruction in money and other monetary items.”
I am therefore inclined to think that the country is not going through deflation. But as I said, I am not an economist. Maybe the gurus can bail us out.