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Editorial Comment: Probe monthly inflation stimulants

The monthly inflation seen in December and last month is still low by historical standards, 4,22 percent in December and 5,43 percent last month, but above what we saw in the previous three months, higher than desired and to a larger extent higher than expected.

The rise is modest, about one to two percent, but needs to be watched, needs to be contained and above all needs to be explained. With exchange rates incredibly stable in those two months there was no cost-push inflation from that quarter, and the Zimbabwean producers should have been able to meet demand.

The sort of essentials on the ZimStat list are largely locally grown, processed or manufactured and any raw materials make it to the priority lists without problems. 

So the foreign currency involved, for anything from fertiliser for tomatoes to the main ingredient in some item, should be procured by bids at the auctions.

The Covid-19 lockdowns have little effect on inflation. While spending power and thus demand will fall as lockdowns enter higher levels, this does not have much effect on what ZimStat measures when calculating the cost of living index. 

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The items that go into the ZimStat basket, in a weighted formula, are the basic goods and services that generally are the last to be dropped when incomes fall.

Explanations are being offered. Economist Mr Eddie Cross, who sits on the Monetary Policy Committee, was concerned at a rise in money supply, at least the amount of money in circulation. 

This is one pressure. Many private employers and Government paid out bonuses towards the end of last year, which would have put more money into circulation.

At the same time relatives in the diaspora were being a little more generous. The queues at the money transfer agencies were significantly longer in the run up to Christmas and regardless of whether recipients spend the foreign currency directly at retail or wholesaler level or whether they change it on the black market first, that does mean an extra block of purchasing power is in the system.

But for both months, for the middle of November to the middle of December and from the middle of December to the middle of January, ZimStat found the pressure was from food and non-alcoholic beverages, with all the other things contributing very little, which does not really map demand pull inflation since few people vary their purchases of food, or at least basic foods, very much from month-to-month. 

With more money in their pockets consumers might splash out on the odd luxury or semi luxury, but ZimStat’s model does not measure that. Anyone following the ZimStat model precisely will find life very plain indeed. 

The model is the updated and modified old model of the spending of the average lower-income urban family, someone living in an average high-density suburban house, buying just what they need, rather than what they want, and enjoying home cooking of plain, but nourishing meals. They also pay all rates and taxes on time.

But, as is the standard case with all in the lower income groups, food is the largest budget item and transport, basically public transport, will have a higher percentage of family expenditure. So food, Zupco fares, and even rates have a more significant effect on the cost of living than they would for a rich Borrowdale family. 

Food prices rose, on a weighted average, 6,54 percent in the month to mid-December and an alarming 7,84 percent in the next month. So this explains a lot of the monthly inflation we saw in those two months. 

There are a number of seasonal pressures on food prices. Vegetables rise in price at the end of the dry season because farmers need more effort. Even when the rains start, it is still the vegetables planted before the rains that are being sold. 

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Cattle farmers cut back on sales until the rains are well established. They have sold off their surplus stock already and are now getting cheap stock-feed, mainly from rain-fed pastures, to turn scrawny October beasts into something worth selling. 

So we have a price rise driven by reduced supply, and thanks to the festive season some more demand.

We do not know if ZimStat were using the subsidised price for roller meal in November, even though that was largely unobtainable, which would explain a jump in price for one important basic commodity in December as the Government switched from subsidy to direct payments to the very poor, which has no effect on pricing.

This does not explain all the price rises for food. The Confederation of Zimbabwe Industries brings in the cost of electricity, with Zesa getting the tariff rises justified by the exchange rate meltdown in the first six months, well after stability was achieved, and rises in other inputs like rates and fuel.

These obviously has some effect, and everything adds up. But the end of subsidies and the jump in energy prices, both Zesa and fuel, are all one-offs, not a general inflationary trend. 

Zupco’s final fare jump last month should also be in that category, and quite possibly was built on a model that does not enforce high levels of sound management.

The danger that arises is that some will see that continuing monthly inflation, especially for food, as a trend rather than as a set of seasonal variations and one-offs. Then those will be feeding in higher prices for things that have no relation to underlying reality. 

Competition should be the control here. If one producer, or one chain of retailers, decides to gouge then consumers should switch to the others who price on actual costs plus a set mark-up. 

However, we have monopolies, or near monopolies, and fairly obviously there is some conniving behind the scenes, either in deals not to compete on price or on actual cartels, even if informal, being formed. 

No one has ever bothered to explain, for example, why the three largest commercial bakers, who dominate the market, have prices that are the same to the nearest cent, despite different circumstances and even recipes.

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The Reserve Bank has been doing its job rather well to get stability. Now others have to come in. We have new and better consumer protection laws and we do have laws that can investigate monopolies and in theory block cartels, but the bodies that work under those laws now may need to be more active. 

This is not being anti-business, and certainly not setting prices, but ensuring that free markets are actually free. Markets kept captive by monopolists and cartels are just as wrong as markets manipulated by Governments. 

Consumers win when free markets are free and what we have been seeing are signs that some might well be at least partially controlled by the market makers. The two sets of monthly inflation figures are not that large, but a careful examination of the raw data collected by ZimStat might well identify where the pressure points are, and investigations can then delve deeper into causes, to see what are justified, what are the result of inefficiencies and what are just plain straight-forward profiteering.

HERALD