Inflation figures questioned again

20 Apr, 2018 - 00:04 0 Views
Inflation figures questioned again

eBusiness Weekly

Kudzanai Sharara Taking Stock
Zimbabwe’s inflation rate unexpectedly cooled to a five-month low in March, and as has been the case in the past, the figures have been met with scepticism with both analysts and consumers questioning the weaker trend.

According to the Zimbabwe National Statistics Agency (ZimStats) the year on year inflation rate (annual percentage change) for the month of March 2018 as measured by the all items Consumer Price Index (CPI) stood at 2,68 percent, shedding 0,3 percentage points on the February 2018 rate of 2,98 percent.

The latest CPI is at its lowest in five months and March’s decline is the third consecutive month of weaker price rises — we haven’t seen such levels since October 2017 when the inflation rate was at 2,23 percent.

On a month-on-month basis, this is the first time after six months, that inflation has been negative although the month-on-month rate has been slowing since August 2017. The month on month inflation rate in March 2018 was -0,25 percent shedding 0,33 percentage points on the February 2018 rate of 0,08 percent.

This, according to some consumers who have been squeezed since the start of the fourth quarter of 2017, is not a true reflection of what’s happening on the ground where, they claim, prices have been on an upward trend.

While the fall in inflation suggests price pressures may not be as strong as consumers think, there is still doubt on whether ZimStats’s method of capturing this important statistic is relevant in an economy experiencing serious price distortions. The disparity between RTGS balances and US dollars is upwards of 40 percent, and this has had a negative impact on the pricing regime and in the process putting to question the reliability of ZimStats’ figures.

But are the questions and doubts justifiable and do they hold?
The whole confusion comes from the fact that people seem not to understand what inflation is than how it is calculated. The latest figures for example are revealing that the month of March experienced price weaknesses with inflation coming off by 0,25 percent. Given the increased rate of promotions and the increased competition in both the retail and wholesale space, it is possible that prices might have come off between February and March. The month-on-month outcome then feeds to the year on year figures, but with a negative contribution resulting in the rate of inflation slowing down.

This does not mean prices did not go up year on year. They still did by 2,68 percent from where they were prior year comparative. In March 2017, the CPI was at 97,013 but closed at 99,615 in March 2018 and this shows prices actually went up year-on-year. To illustrate further, prices also went up between February 2017 where CPI was at 96.983 and February 2018 where CPI was at 99.868.

The year-on-year Inflation however slowed because of what happened between February 2018 and March 2018. In February CPI was at 99.868 while in March it was at 99.615 meaning prices came off in March from where they were in February. Looking at the statistics there is that possibility that indeed prices came off in March.

According to ZimStats, the majority of the slip is courtesy of lower transport costs which came off by 1,29 percentage points to 0,35 percent, communication (down 1,60 percentage points to -1,03 percent) as well as prices in hotels and restaurants (down 0,14 percentage points to 1,30 percent), housing, water electricity gas and other fuels (down 0,74 percentage points to -1,32 percent) and clothing and footwear (-0,14 percentage points to 4,81 percent).

But there were price increases for other products as reflected by inflation figures for alcoholic beverages and tobacco (up 0,13 percentage points to 2,02 percent), furniture, household equipment and maintenance (up 0,46 percentage points to 8,52 percent), health (up 0,18 percentage points to 1,91) and recreation and culture (up 1,58 percentage points to 10,48 percent).

On a year-on-year basis there is still high inflation rates for various categories albeit at a slower pace than February. The March year-on-year inflation rate for food and non- alcoholic beverages stood at 4,54 percent after price increases in oils and fats, meat, fish and fruit prices. There was also high inflation for furniture, household equipment and maintenance at 8,52 percent on the back of increases in maintenance equipment prices.

But negative inflation for housing, water electricity gas and other fuels — 1,32 percent and education — 2,24 percent among others meant average year-on-year inflation for March was lower than that of February.

A closer analysis will also show that items that have increased a lot in prices tend to be weighted at low percentages of typical household spending. Alcoholic beverages and tobacco with an inflation of 2,02 has a weighting of just 4,4, while furniture, household equipment and maintenance with inflation of 8,52 has a weighting of just 9,9. Recreation and culture which has the highest inflation of 10,48 percent has a weighting of just 2,1.

With fuel, bread and mealie-meal prices almost unchanged, school fees almost static and rents, clothing and transport coming down the inflation figures might be closer to the truth after all.

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