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Vicious economic cycle continues

HARARE - Zimbabwe's year-on-year inflation rate was 1042,9% in April and prices increased by an average of 21,1% during that month. The figures show that average consumer prices more than doubled in the first four months of 2006, the index rising to 105 734,3 on the base of Average 2001=100. The index for December 2005 was 48 295,6 and the actual increase to the new April figure was 119,3%.

As a group, food prices rose most steeply during the month, driven by fresh vegetables at 42,3%, mineral waters & soft drinks at 40,2% and bread and cereals at 32,5%. The average increase for all foods was 27,9%. Other increases above the All Items average were rents at 24,8%, bicycles at 30,3%, fuels and lubricants at 35,1%, health & motor vehicle insurance at 48,1% and recreational items at 66,5%.

With the doubling of average prices, many employers, including government, have responded by awarding significant salary increases during May. Most of the salary increases to producers will have their impact on consumer goods prices from May onwards, so will not have been a significant part of the reason for the April increases. From the end of May, however, these and the public sector increases will considerably increase consumer buying power and will almost certainly generate demand in excess of supply for many goods, so a proportion of the coming inflation will arise directly from deepening scarcities.

Large subsidy payments will also be payable in the coming months, particularly for cotton, tobacco and maize, and the producers of these will add to demand pressures long before adding to the supplies of consumer goods. So from cost-push inflation, we are moving to demand-pull inflation that will generate many new cost elements and keep the vicious cycle in motion.

Consumer Council of Zimbabwe