Scarred by the hyperinflation era, Zimbabweans fear a dejavu with prices of basic commodities sharply rising. On this background, a leading financial market and investment analytic firm FBC Securities fears the return of the dreaded 2008
By Kudakwashe Pembere
EQUITIES analysts FBC Securities forecast that price hikes induced by foreign currency shortages could plunge Zimbabwe back to the dreaded hyperinflation era.
This prediction follows hot on the heels Zimstats’s figures showing inflation in Zimbabwe soaring last month to its highest level since 2008.
According to Zimstats, the annual inflation rate shot up to 20.85 percent in October, from 5.39 percent in September after the foreign currency shortages saw a Zimbabwe’s pseudocurrency ‘bond note’ , triggering sharp price hikes in many goods and services.
That sent a ripple of fear among citizens still traumatised by the hyperinflation era, which ended when Zimbabwe was forced to abandon its currency and adopt the multicurrency regime in 2009.
Some businesses in Zimbabwe are now demanding cash in U.S. dollars only and have raised prices by more than three times for the majority of Zimbabweans who pay for their goods using the bond note, mobile money or bank cards.
Zimstat said on a monthly basis, prices jumped by 16.44 percent in October from 0.92 percent in September,
“According to economic fundamentals when inflation is within the range of 20%-50% it’s called galloping inflation. Hyperinflation kicks in when Year-on-Year inflation surpasses the 50% mark. According to economic history for countries that were affected by inflation challenges like Hungary, Yugoslavia, Germany, Greece, Zimbabwe etc, its near impossible to correct the galloping inflation back to sustainable levels (below 7%),” FBC Securities said in their Weekly Snapshot. “Borrowing from the available history in the economics of inflation we can safely say that our country is heading for hyper-inflation. The only uncertainty is on the exact timing of the real phenomenon.”
The analyst division of FBC Holdings said shareholders are concerned with the profits registered by companies which do not reflect the situation on the ground.
“During galloping inflation financial statements are heavily distorted. Taking a closer look at the majority of companies listed on ZSE, they recorded a near double digit growth in revenues, EBITDAs, and PBT. The profits that companies are posting raise a lot of eyebrows to all relevant stakeholders especially the shareholders,” said FBC Securities.
Said FBC Securities, “Any investment decision which is based on quantitative analysis currently will be insufficient without discounting or factoring the inflation component.”
Economically, Zimbabwe’s most active sector is the informal sector.
“Our economy is largely informal; some scholars argue that ZIMSTATS inflation figures are understated since it mainly captures the formal market where there is data availability. The majority of trades are in the informal sector for food, non-alcoholic beverages and other commodities that are used to calculate the CPI,” FBC Securities noted.
Clarity on the exchange rates obtaining in the country, according to FBC Securities, will determine if Zimbabwe is in the velocity of hyperinflation.
“Another school of thought is that the true current inflation figure will be realized when the government flexes the exchange rate between USD, Bond and the RTGS. The current answer to the possibility of flexing the exchange rate is that our government is not prepared for it (at least for now) although it remains one of the best option available at the moment,” said FBC Securities.
Zimstat stopped publishing official inflation data in September 2008 when it reached 236 million percent, but the International Monetary Fund put the figure at 500 billion percent. The statistics agency resumed running inflation figures in February 2009.
All eyes are on Finance Minister Mthuli Ncube who anytime soon is expected to present the 2019 National Budget.
On October 2, he said the budget deficit, which is expected to reach double digits this year, was fuelling inflationary pressures and could hobble the economy.
The economic crisis is a major challenge for President Emmerson Mnangagwa, who won a disputed vote on July 30 in the first election in the southern African nation since Robert Mugabe was removed by the army a year ago after nearly four decades in power.
Teachers and doctors associations recently petitioned the government to pay them in U.S. dollars or increase their salaries saying the cost of living had increased beyond their wages.