Inflation dispute about lifestyles

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There have been some who dispute the 3,46 percent inflation rate of the Zimbabwe National Statistics Agency, with these objectors suggesting a rate of “50 to 200 percent” without offering much in the way of accepted methodology to justify these wild figures.

Zimstats derives its figures basically by comparing the prices of 495 products from 3 932 outlets across the country sampled in the middle of each month. Products are assigned to 12 sectors each of which is assigned a weight derived from a consumer survey. The methodology and calculations follow standards recommended by the United Nations and followed by all our neighbours.

Anyone looking at the list of 495 products can see, almost at a glance, that there has been very little variation in price in most of the items over the last 12 months. The list reflects the spending patterns of the average Zimbabwean, and the average Zimbabwean is not well off. The fact that food accounts for 33 percent of spending is the biggest indicator of poverty or near poverty.

The better off ones spend very little on food. There is only so much one person can eat in a day, and obviously while different foods and new foods are bought as one has more money, there are limits. Americans and northern Europeans assign about 15 percent of their spending to food.

The food items on the Zimstats list are kept stable by a great deal of effort by the Government and Reserve Bank of Zimbabwe. Almost all are processed in Zimbabwe and many are produced in Zimbabwe. Foreign currency components are funded through the priority system at the official 1-1 exchange rate between bank account dollars and foreign dollars and where local production costs have risen what amounts to a subsidy has been fed into the system.

Housing costs have not risen. High levels of home ownership help, but even rents, as most landlords are painfully aware, are low. This in fact is a continual complaint from commercial property owners. And the fact that the average Zimbabwean family assigns less than 10 percent of its spending to transport suggests that bus and kombi tickets absorb this money, not imported cars and imported spares, although even the richest Zimbabwean has seen little movement in fuel prices in the last 12 months.

We agree that those who have a significant percentage of non-priority imported goods in their monthly consumption are likely to have seen their cost of living rise far more than 3,46 percent last year. Imported wine and whiskey, imported non-generic spares for luxury cars, and a wide range of consumer goods do not receive priority allocations, and imports are largely funded through the parallel markets.

It might be interesting for someone to hire a statistician who could set up a detailed commodity list for a high-income Zimbabwean family, even if this was based just on a survey in say Borrowdale Brook, and see what this would produce. It would probably be somewhere between the 3,46 percent figure and the premium for “street dollars”, and so while some items on that top-income list have risen 50 percent in price, the average has to be lower, a lot lower. A good chunk of the spending of the richest is still on items that have risen little in price, although the shock of the latest quote for a Benz spare might cause a subjective feeling of much higher inflation.

Then we come to the Old Mutual Implied Rate. This is a fascinating figure and accurately measures something, but not inflation. What it measures is the sum of the premiums buyers of Old Mutual shares are ready to pay to have their assets parked in a safe income-producing liquid asset that can be used to legally export capital from Zimbabwe. So there is a pile of premiums: the first is obviously the parallel market rate; then there is the fact that keeping spare cash in OM shares rather than dollar notes under the mattress does produce income and is safe from theft; thirdly we have the “insurance” premium, a bet on safeguarding value should there be high inflation again; and finally there is the obvious very high premium those with money are obviously prepared to pay for the privilege of moving their capital without going to jail. The laws of share supply and demand then apply to create the last three of premiums that can be added to the original currency dealing premium.

In some ways it is a complement for Zimbabwe’s law enforcement agencies that some seriously rich people are ready to pay a high premium for the right to export capital legally rather than sneak across a border with a suitcase of US dollar notes.

Of course there is a fifth factor that muddies the OMIR waters a bit further, the calculation that some will make over what the hypothetical legal currency mover will be willing to pay in say six months and can the dealer now make a profit by laying in stock.

One of the critical factors in measuring anything is to figure out exactly what it is we are measuring which sometimes needs a little thought.

But even on the official inflation rate it is possible for the lower income urban family to beat the rate by simply following the advice of the Consumer Council of Zimbabwe, which produces its own basket, a less rigorous measure than the Zimstats rate, but still useful. The council has found, and anyone calling in a variety of supermarkets can confirm this, that there can be wide variations of prices of even essential food items. Sometimes this is brand difference, but sometimes it is the mark-up policy of the supermarket and the pressure a buyer can put on a supplier for discounts.

For example one supermarket might decide to keep a very low mark-up on cooking oil, while the outlet in the next block might decide to impose the average mark-up. The second supermarket is not profiteering but the first is hoping to attract more customers who will chuck a few higher priced items into their trolley. But the gaps are growing and make it worthwhile for even a few days’ supplies to invest in a 50c kombi fare to do comparison shopping.

And even the rich can think about boosting the Zimbabwean percentage of the goods in their shopping basket. They will not only moderate personal inflation, but also help their friends who own and manage the producing companies.

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