The Russia-Ukraine conflict spawns global price hikes... Speculative behavior worsens the Zim situation.

Capitalk Reporter/The Herald |  9 months ago | top

The geopolitical developments in Eastern Europe, where Russia is conducting a special military operation in Ukraine, have triggered price increases across the world, including in Zimbabwe, as supply chains have been significantly affected.

Further, speculative behaviour by some private sector players, who borrow from banks, spin the money and collapse the local currency by offering to pay more for United States dollars so that they pay back less to the banks, has also contributed to price increases in Zimbabwe.

In a number of countries, including the United Kingdom, prices are surging at their fastest rate in 40 years, with South Africa having already told its citizens to brace for a fresh round of fuel price increases next month.

Fuel, consumer goods, and gas prices have seen prices spiraling worldwide. In the UK, the Consumer Prices Index (CPI) rose by 9 percent in the 12 months to April 2022, up from 7 percent in March, while on a monthly basis, the CPI rose by 2.5 percent in April, compared with a jump of 0.66 percent in April last year.

The UK’s Chief Inspector of Constabulary, Andy Cooke, said the rise in the cost of living would trigger a surge in crime but said officers should use their "discretion" when deciding if it is necessary to prosecute people who steal to eat.

Some supermarkets in the UK are limiting the quantities of cooking oil that customers can buy to ensure everyone has access to the product.

Statistics from the Consumer Council of Zimbabwe, a consumer watchdog, show the monthly food basket for a family of five rose to $120,000, up from $98 000 in April, as price increases take root.

The World Food Programme Zimbabwe chapter posted on its Twitter handle recently: "Despite being 11 000 km away from Ukraine, the adverse effects of this conflict will most likely be felt in Zimbabwe."

Last week, Reserve Bank of Zimbabwe Governor Dr. John Mangudya said "imported inflation" was largely to blame for the rise in local prices.

Mr. Denford Mutashu concurred, saying: "If one travels across the width and breadth of the world, they will surely appreciate better the negative socio-economic ramifications the geo-political crisis emanating from the Russia-Ukraine conflict has had."

The measures include resuming petrol blending at E10 from April 25 this year, which is expected to go up to E20 by the end of this month. The government scrapped the mandatory blending of petrol in January this year.

The government has also allowed the importation of some basic goods duty-free for six months by those with free funds to ensure reasonable pricing. The products are rice, flour, cooking oil, margarine, maize-meal, sugar, petroleum jelly, salt, milk powder, infant milk formula, tea, toothpaste, bath soap, laundry soap, and washing powder.

Mr. Percy Gwanyanya, an economist and a member of the RBZ Monetary Policy Committee, said that being an import-dependent economy, Zimbabwe would bear the brunt of global commodity prices.

He added that as signs of tough times ahead were clear for everyone to see, some countries were taking prompt measures to turn the curve, including restricting exports of key commodities, whilst others were limiting product purchases per individual.

He said in Zimbabwe, the effect of global price increases has been minimized by the Foreign Currency Auction system, which supports access to affordable foreign currency by businesses, who would then pass the benefit to consumers.

The Zimbabwe National Chamber of Commerce Chief Executive Officer, Mr. Christopher Mugaga, said it was difficult to "discount the impact of the Ukraine conflict on the local economy".

He added that since the Russia-Ukraine conflict is expected to drag on for much longer, the threat of inflation will remain elevated in the short to medium term.

Russia's President, Vladmir Putin, has previously said the provision of weapons to Ukraine by the EU and the US would prolong the special military operation.

Mr. Langton Mabhanga yesterday conceded that the geo-political issues in Eastern Europe were having an impact on the local economy but implored the RBZ to be "more vigilant and innovative," especially in providing 21st century leadership to the financial sector through relevant and responsive monetary policy strategies that edify Vision 2030 of an upper middle income economy and the National Development Strategy 1.

The economy scored a growth rate of 5,8 percent against the backdrop of the Covid-19 pandemic, and a surplus current account balance in 2021 and home-grown climate change proofing strategies that now provide food sufficiency cushion despite a depressed 2021/2022 season.

Mr. Mabhanga said Zimbabwe continues to aggressively build its own infrastructure principally roads, dams and other water projects, using local resources, hence the need to harness all internally generated funds to ensure they are not used to cause pandemonium in the market.