The Zimbabwe Coalition on Debt and Development (ZIMCODD) says the use of blended inflation statistics by the Zimbabwe National Statistics Agency (ZimStat) will largely mask the actual inflation tax experienced by local currency earners while further eroding market trust in the government and its institutions.
ZIMCODD, a socioeconomic justice watchdog made this observation after ZimStat issued September 2023 inflation statistics, which reveal that prices climbed by 18.4 percent year on year from September 2022 to September 2023, a significant decrease from 77.8 percent seen in the preceding period of August 2022 to August 2023.
According to ZimStat, from a month-on-month perspective, prices slightly increased by one percent in September (August 2023 to September 2023), up from -1.3percent (deflation) realized in August (July 2023 to August 2023).
ZIMCODD explained that this significant moderation of inflation in the month under review was mostly due to a change in the methodology used to calculate blended inflation.
“ZimStat has now shifted from using arithmetic aggregation of indices to geometric aggregation on the pretext that the former methodology follows an index with a higher magnitude, instead of the one with the higher weight,” said the watchdog.
“ In its latest consumer spending survey, the statistics agency found that 80 percent of transactions in the economy occur in USD whilst the remainder (20 percent ) is in ZWLs.”
However, regardless of the methodology used to calculate blended inflation, ZIMCODD stated that mixing ZWL and USD prices offers a false picture.
“The USD is a stable currency thus it exerts a stabilising effect on the overall weighted average (blended inflation) thereby masking the actual cost of living incurred particularly by households earning in ZWLs,” said ZIMCODD.
“A glance at Reserve Bank of Zimbabwe (RBZ) statistics shows that since the turn of September 2023, the ZWL has shaved at least 15 percent of its value against the USD in both the official and alternative markets. The perpetual ZWL fragility is helping sustain incessant ZWL inflationary pressures thus forcing ZWL prices to stabilise at higher levels beyond the reach of many.”
ZIMCODD noted this was occurring at a time when the outlook period will likely experience increased debt distress, post-electoral risks, climatic shocks, high fuel prices, electricity shortages, and deteriorating global geopolitical tensions, among other risks.
“To cushion the economy and vulnerable groups, fiscal spending will balloon thus increasing ZWL liquidity in the economy. In turn, this will likely further destabilize the ZWL exchange rate, fuel ZWL inflation, widen societal inequalities, and deepen poverty in the coming months,” said the watchdog.
“To date, over 50 percent of the population is estimated to be entrenched in abject poverty. Despite this growing concern, the use of blended inflation statistics by ZimStat will largely mask the actual inflation tax borne by ZWL earners and further erode market trust in the government and its institutions.”
To hold RBZ accountable, ZWL inflation must be measured separately and shared widely with all stakeholders, added ZIMCODD.
“Generally, the success of a central bank is measured by the performance of the local currency and the level of inflation. Blended figures largely include the USD, a currency which the RBZ has no significant control over,” said the watchdog.
