Zimbabwe inflation shoots to 176%, speculative exchange rate blamed

Zimbabwe’s year-on-year inflation rocketed from 97.85 percent in May to 175.66 percent in June.

According to columnist Kudakwashe Bhaera while in most cases inflation is based on money supply, inflation in Zimbabwe at the moment is being driven by a speculative exchange rate which is being used to determine prices.

Bhaera, a chartered accountant, said the Mnangagwa administration is not printing money as happened in 2008 when inflation spiralled out of control.

Finance Minister Mthuli Ncube has reined in government spending and is running a budget surplus from the beginning of the year.

“This time, the cause of inflation (is) cost push, driven by a speculative exchange rate and almost everything (is) now being priced by an exchange rate factor,” Bhaera wrote in Newsday.

Month-on-month food inflation shot up by 55 percent between May and June while non-food inflation rose by 31.23 percent.

Zimbabwe re-introduced the Zimbabwe dollar last month and made it the sole legal tender for local transactions.

Inflation for July is therefore likely to be higher as most business adjusted their prices by a factor of 13:1 or more when the government said all prices must be in local currency.

The local currency which was trading officially at 1:1 until February is now trading at nearly 9:1 but most businesses pegged their prices at 13:1 or more.

The government also allowed banks to freely trade in foreign currency determining their own rates but most bank do not have cash which is forcing people to resort to the black-market for bond notes.

The rate for bond notes, however, ranges between Z$6 and Z$6.50 while that for electronic money is Z$9.

This has also led to a lucrative trade for those with cash to charge a premium of between 35 and 40 percent to those with electronic money who want cash.

Some reports say 90 percent of the trade in Zimbabwe is now through electronic money raising questions as to why the government is not making it easier for those using electronic money and penalizing those who use cash as happens in some developed countries.

Mthuli Ncube said the government will release Z$400 million worth of bond notes before the end of the year but he said this would be done gradually to avoid speculation and fuelling the black market.

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