EDITORIAL COMMENT: Low monthly inflation victory against speculators Presenting the 2019 national budget, Finance and Economic Development Minister, Professor Mthuli Ncube said the administration of the tobacco levy by TIMB had not served its intended purpose of financing conservation initiatives in the country. 

The crashing monthly inflation rates hit 1,8 percent by the end of the second week of this month when ZimStat sends in its army of data collectors to gather the thousands of prices from retailers across Zimbabwe that when fed into the formulas generate the consumer price index.

While annual rates are not much use at the moment, because of a graph that rises and crashes, the annualised rate is a useful figure. 

A rate of 1,8 a month comes to just under 24 percent a year, and when you consider that just five months ago, in the middle of June, monthly inflation was 30,7 percent, and a lot of people were suffering as the speculators ran wild, the extent of the victory is quite spectacular. 

That huge spike in the second quarter of this year, after monthly inflation rates had been creeping up for 11 months since reaching their last low in the second quarter of last year, was most agree largely driven by speculation in the black market for foreign currency. There would have been some inflation, since it became apparent when the official currency markets were sorted out that the Zimbabwe dollar appeared to have been undervalued.

But generally the fundamentals were in good shape, including the two most critical, the rigid fiscal discipline of the Government since the advent of the Second Republic, and the positive current account over the same period, that is foreign currency inflows exceeded foreign currency outflows.

The slight strains on the system arose from the fact that diaspora inflows were needed to convert a modest trade deficit, that is we imported a little more than we exported, into the currency account surplus, and the fact that with the export retention schemes our trade inflows were split between two groups, the net importers and the net exporters.

What the speculators did was to take those slight strains, stick in very large crowbars and pull hard so as to open gaps that they could extract the wealth of the general population. 

The authorities retaliated, first with some modest legal cleaning and then unleashing a very innovative and creative use if market forces to smash, and we hope bankrupt, the speculators.

The first big weapon was the introduction of real interest rates for borrowers. This meant banks, which had been ready to lend to almost anyone with collateral, now had to charge speculators more than 200 percent interest when they borrowed to finance their black market speculation. 

That made the illegal speculation totally unviable, and killed it, overnight. We hope that this will see banks trying to make profits by lending to legitimate and honest businesses instead, rather than feeding the money supply through some of this lending where they did not care what the borrower was borrowing for. 

There had been an attempt to use legal measures, but in the end the interest rates did the job rather well.

The second measure, or set of measures, was to mop up the flows of local currency, created within the private sector rather than by the Government as had been the case before the Second Republic. Here just introducing gold coins mopped up most of the excess, with the honest majority in the business world eager to embrace a simple, foolproof and legal option.

Then the thrust turned to that less honest minority, and the Government used its muscle as the largest buyer of goods and services in Zimbabwe to ensure value of money, in other words killing overpricing. 

Seventy percent of businesses passed in the first round; some in the other 30 percent are apparently still recalculating their prices while the battle to get paid. 

And then those who seemed to be honest, but were rushing off to the black market as soon as they were paid needed the final warning, the total loss of all future Government business. Again market forces make honesty profitable.

The fourth measure, and among the first, was using the interbank market to set an official exchange rate that everyone agreed was set by an open market, and which would automatically reflect the real value of the Zimbabwe dollar and foreign currencies. 

This market is expanding in scope and value and one day Zimbabwe will be like most countries, where there are no multiple currencies, just the local one, and the interbank market sets the rates without anyone fussing.

There were other measures, from cleaning up some of the wilder shores of the Zimbabwe Stock Exchange onwards, which were all useful. 

But the main attack came from pure market measures, and the victory that has been won is thus one that can be maintained. Because the dishonest are always looking for the main chance, vigilance will be needed, but generally we now know the most effective methods of attack and defence. 

Regrettably in these sort of areas patriotism is not desperately admired.

In his annual Budget, Minister of Finance and Economic Development Mthuli Ncube wanted the Reserve Bank to maintain monthly inflation in that one percent to three percent band.

It was in some ways co-incidence that the next announcement was within the band, for the first time in over a year, but that just shows the target is achievable.

And the Minister gave the Reserve Bank approval to use any means necessary, so long as they were legal, to keep the speculators out of our world and out of our pockets.

We have now had a run of modest monthly figures, 3,5 percent in September, 3,2 percent last month and now 1,8 percent this month. There may be an attempt over the next month to push prices a bit as some try to maximise profits, but already we are seeing some of the major retailers with a reputation for stressing volume rather than spiking mark-ups who are offering specials.

So the old advice that consumers should shop around applies when consumers start shopping with their bonuses. They need to make it clear to the less honest retailers that they are not interested. 

Many of the sort of pricing structures we are now seeing are likely to be maintained as manufacturers seek stability as well, but turning more and more to local sources for their supplies. 

Just this week we have seen a major maker of cooking oil and margarine hire 100 000 Zimbabwean farmers to grow their sunflower, so that the fact that Ukraine is number one grower and Russia number two no longer worries that company. 

That is the sort of thing we need to see a lot more of. For manufacturers it gives assured supplies, for consumers it gives stable pricing, and for farmers it gives a decent source of income. No Zimbabwean loses and in fact we all win.

What we have been doing in the last few months is protect the gains that our fundamentals gave us. In his budget speech Minister Ncube noted there were potential strains still around, but when these are focused on in advance then the opportunities for the less desirable elements in society to snatch the money regardless of the suffering suddenly become blocked.

This year’s inflation mountain, now behind us in the rear-view mirror, should not have happened, but because it did and because it was beaten we have emerged on the other side a lot stronger, with an armoury of measures we know work.

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