Zim deflation unusual say economists

Zimbabwe is trapped in a complicated deflation, which will be difficult to shrug off if government fails to adopt clear and sustainable economic policies, say analysts.

Moses Jiri.
Moses Jiri.

Prices of goods and commodities are either stable or on the decrease, partly due to low levels of demand caused by shrinking economic activity. Respected economist John Robertson attributed the deflation to high levels of unemployment and people holding on to their money in anticipation of further falls in prices. “Scarcity of money has left people in a position where they cannot buy as they would under normal circumstances,” Robertson said. Economist Godfrey Kanyenze said: “There is nothing to heat up the economy hence the deflation.”

He noted that aggregate demand for goods had fallen, so did consumption and expenditure, and warned that the country would find it difficult to come out of the deflationary state, unless massive capital injections were made.

The continued depreciation of the Rand against the US dollar was not helping matters, as it made it cheaper for people with dollars to import goods from South Africa. This means Zimbabwe’s resources are stimulating economic activity elsewhere.

Fluctuations in international commodity prices have ripple effects on Zimbabwe’s economy.

Minister of Finance and Economic Development, Patrick Chinamasa, declined to comment on the country’s deflationary state, saying ‘I am not an economist’. Economist Eddie Cross said the economy was failing and “there is need to restore confidence in the state, engage the International Community and unlock the country’s economic potential as a matter of urgency.”

A businessman running a Caltex fuel station in Chivhu, Moses Juri, said prices of both diesel and petrol had been virtually unchanged for 12 months. In May 2013 diesel was priced at $1.36 while petrol was $1.50. Now diesel is $1.37 and petrol is $1.49.

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