EDITORIAL COMMENT: Inflation, pricing depend on what you buy

The shortage of foreign currency from official channels for the retail trade and the effects of SI64 on Zimbabwe’s productive capacity have caused confusion in how much the cost of living may or may not have risen over the past year.

A great deal depends on what you buy and where you buy it. And those commenting on changes and trends need to quantify how much business is done by what types of shop, market stalls, barrow vendors and pavement vendors.

For a start, the bulk of goods making up most official consumer price indices are sold through large commercial retail sector where prices are identical regardless of method of payment: US dollar banknotes, bond notes, PoS machines or mobile money. While there might be far more little shops and stalls selling food and toiletries with fancy cash discounts and the like, it needs a lot of stores where a daily taking of $500 might be considered exceptional to match a single branch of a supermarket where $1 million passes through the tills in a month.

This is why, by value, “plastic money” purchases totally dominate the retail sector and while they are still dominant, but less so when looking at the volumes of transactions.

Secondly, it is fairly obvious that whether prices have risen, or how by much they have risen, depends a lot on the origin of the goods.

Zimbabwean fresh food and products that are largely created from Zimbabwean raw materials by Zimbabwean manufacturers have not noticeably risen in price, although there are seasonal fluctuations.

This category includes items such as soya-based cooking oils and bread that use imported raw materials, but materials that are covered by official high-priority forex allocations. Fuels are also in this group, so petrol prices fluctuate with world refined petroleum prices, but have no scarcity element.

There is the odd exception. Eggs became scarce with the outbreak of avian flu and while they are now returning to supermarkets, prices can be more than 20 percent higher. It will be interesting to see as production rises whether this reflects higher costs of keeping chickens disease free or whether it is a misguided attempt to recoup lost revenue arising from lost production.

When we turn to imported consumer goods, there creative and unofficial sourcing of foreign currency is far more noticeable. Prices have tended to rise, sometimes driven by other currencies recovering against the US dollar or higher inflation in say South Africa, but obviously at times by the differential between cash and bank exchange rates.

There was a time, for example, early last year, when many foreign products were cheaper than their Zimbabwean equivalents, causing consumer resistance. SI64 was promulgated to help restore Zimbabwean industry. Now it appears that market forces might well be doing more to boost demand for Zimbabwean goods since official allocations to import foreign consumer goods where there is an adequate local product are simply not a priority.

The net result of SI64 and forex shortages has been that a shopping basket comprising largely Zimbabwean products or very high priority imports shows little price change over the last year, regardless of method of payment or place of purchase.

At the same time, a shopping basket of low-priority imported goods, paid for in US dollar banknotes, perhaps by a recipient of a diaspora remittance, also shows little change although to achieve that the buyer will have to accumulate the items at a number of small shops in odd parts of a town, and an economist would insist on costing that extra time and trouble.

A basket of imported goods not covered by high-priority allocations and paid for in plastic will cost noticeably more. This, in a sense, has the same effect as the “internal devaluation” some industrial economists were seeking, pushing up the price of imports while keeping the prices of local goods more static.

As market forces take over much of the strain from SI64, Government and the RBZ can continue to guide the market. The determination to boost agricultural production has already seen major benefits and more are in the pipeline, such as the plan to boost soya production and try out rice production. To avoid shortages, the RBZ needs to mobilise foreign currency for essential raw materials, while backing Government efforts to build up local production of these.

And Zimbabweans can play their part. The “Buy Zimbabwe” campaigns deserve more support; drivers cutting fuel consumption even moderately can boost forex allocations for other goods and engaging and investing in production rather than just consumption will not only reduce import demand, but create export markets, both in the end reducing a lot of pressure on the balance of payments.

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