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Zimbabwe re-entered the world of positive inflation last month, although 0,06 percent is only just above zero, and in many respects this is welcome, but we also need to keep a careful eye on price rises. Most economists reckon a healthy economy should have low positive inflation, around 2 percent a year for a developed economy and slightly higher for a developing economy. At this level productivity corrections are possible without stress and investment is encouraged. Of course higher inflation, as all Zimbabweans know to their cost, first damages an economy and then cripples it.

Deflation, that is negative inflation, is not always evil. Sometimes, as we saw in Zimbabwe in the years after the switch to multi-currencies, it is simply the effect of the recovery of a severely damaged economy and the move towards lower margins on higher volumes.

But if it goes on too long then other strains appear; for a start it is often a sign of serious under-use of assets and obsolete investments.

There are a number of reasons for the modest price jumps.

First capacity use has been rising since the promulgation of SI64 last year. Some Zimbabwean manufacturers are looking at very high percentages of asset use, and need to start thinking about expanding, while others face shortages of raw materials so are failing to achieve full efficiency. This second case needs to be addressed urgently.

At the same time competition has been reduced over a wide range of goods, and in too many industries there are few significant businesses and in some cases only one. A close watch needs to be kept to ensure that monopolies or duopolies are not using their market dominance to hide inefficiencies and low productivity.

Comparisons with prices in more open economies is a good start in this checking process.

Secondly, the global economy has overcome the worst effects of the major recession nine years ago. This is particularly true of the largest economy; that of the United States, where the central bank has started putting tiny rises onto interest rates to ensure that the small rises in inflation remain at the desired levels. But it seems obvious that since we largely use the US dollar as our unit of account that two percent inflation in the US will eventually produce a similar result in Zimbabwe. There is nothing much we can do about this, one way or another.

The third factor is that in some retail sectors the shortage of foreign currency has meant a greater reliance on “runners” and cross-border traders fulfilling orders.

Carrying US dollar or rand banknotes over the border and bringing back a few bags of goods is not the most efficient way of doing business and obtaining these banknotes with internally held dollars has for almost a year often attracted a premium.

There were reports early last year that some cash-rich businesses were asking for a fee to allow people to swipe for cash, and the introduction of bond notes simply allowed those without swipe cards to enter the same game.

Most retailers do not distinguish between electronic, bondnote or banknote payment. But a minority do offer modest discounts for US dollar banknotes. These are normally small shops with a very high percentage of stock being non-essential imports. This does increase overall inflation, but does cause distortions in some small sectors.

The Reserve Bank has announced that it will feed $15 million into the cross-border trader sector, a sum that should contain and limit the banknote premium, although probably not eliminate it. It also ensures that a lot of people who earn their living in this sector can continue to do so.

In any case we should see positive improvements in our current account this year. We will be importing a lot less food and exports will rise in both volume and in many cases in price. For a start we are likely to have a decent cotton crop to export. Global metal prices are drifting up again and a number of Government initiatives are making it easier for miners to boost production.

So constraints facing local industrialists will ease, and even those with a very low priority for foreign currency can probably get the odd bone.

So the slight price rises need to be watched to ensure that they are the result of positive, not negative, changes in economic conditions.