Zimbabwe shifts to ‘blended’ inflation -Business says not a good idea

Zimbabwe will now measure inflation using a weighted average of goods and services priced in Zimdollars and US dollars, according to a Ministry of Finance statutory instrument gazetted today, a reaction to the growing dominance of the USD in the economy.

To measure inflation, national stats agency Zimstat uses the average prices of a basket of selected goods and services. From now on, Zimstat will use the USD and Zimdollar prices of these goods, and not just the Zimdollar prices as before.

For February, using that blended rate, Zimbabwe inflation was 92.3% from 101.5% in January, according to Zimstat data also released Friday. In January, before this change to blended inflation, annual inflation was 229.8% from  243.8% in December.

Business groups have opposed the exclusive use of ‘blended inflation’ as the price benchmark, saying it makes planning and accounting harder.

A household survey by Zimstat in January found that 76.56% of people’s spending is now in USD, with just 23.44% in Zimbabwe dollars.

In his monetary policy statement in February, RBZ governor John Mangudya said it was “essential and logical that the blended rate of inflation should be the reference rate of inflation in Zimbabwe”.

He added: “It is…important to note that the Zimbabwe dollar inflation is no longer a true representative of the cost of living in Zimbabwe as the country is in a dual currency system where prices and household incomes are also in both US dollar and local currency.”

But the Confederation of Zimbabwe Industries, the country’s biggest business grouping, disagrees, and recommends publishing both the ZWL and blended inflation rates.

“While the RBZ has total control over the Zimbabwe dollar inflation rate, it has very little influence over the US dollar inflation rate, even if the US dollar is circulating within the economy,” CZI says. “Thus, a blended inflation target without a corresponding Zimbabwe dollar target might not be appropriate from policy targeting perspectives.”

The new SI on blended inflation is likely to impact how companies prepare their accounts. The IAS 29 accounting standard requires the use of a general price index that reflects changes in general purchasing power. In 2020, Zimstat began publishing a blended inflation rate, but kept reporting Zimdollar inflation alongside it.

At the time, the Institute of Chartered Accountants of Zimbabwe (ICAZ) cautioned against using the blended rate when preparing company financials.

ICAZ said then: “A blended inflation index is not appropriate in the preparation of inflation adjusted financial statements as the financials are prepared in a particular functional currency (either ZWL or USD) and not reported in a blended currency. Similarly, any inflation index should also be specific to the reporting currency. Therefore, those entities whose functional currency is ZWL should continue preparing hyperinflation accounts using the ZWL CPI.”-NewZWire

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