By Memory Mataranyika for Fin24.com
- Zimbabwe is descending into economic crisis as the fall-out of the Ukraine invasion, along with a plummeting local currency and government interventions are pushing prices higher.
- The price of bread was hiked by 70% in a single week.
- The official inflation rate is already above 130% – but real inflation may be double that.
Zimbabweans have seen the price of bread increase by 70% this week, which alongside more fuel price hikes is accelerating a descent into hyperinflation and an economic crisis.
This week, the bread price rose from $1 to $1.70 at some outlets, due in part to the knock-on effects of wheat prices that are trading near record highs. Prices are skyrocketing on the back of supply shortage fears, amid falling exports from Ukraine and Russia, who supply more than a third of global wheat exports.
But the bread price also increased in reaction to new measures implemented by the government to promote the use of the fast-falling Zimbabwean dollar. Purchases in foreign currencies, which now have to be taxed in the unit of exchange, are becoming relatively more expensive. Zimbabwe imports wheat and grain.
Meanwhile, on Tuesday, petrol prices rose from $1.68 to $1.73, and diesel from $1.71 to $1.76 respectively.
This means that Zimbabwe now has the most expensive fuel in the southern African region, alongside Malawi, says Chiedza Madzima, head of operational risk at Fitch Solutions.
Madzima said the region was hit by increased refined fuel prices, as it is heavily reliant on fuel imports and exposed to global oil price fluctuations. Supply chain constraints due to the Ukraine invasion are worsening the situation for the region, especially for landlocked countries such as Zimbabwe.
High fuel prices mean pricier transport costs for almost all products, which will eventually result in price hikes for many goods. This will have a painful fall-out in Zimbabwe, where elevated inflation is ballooning into hyper-inflation.
According to Zimstats, the consumer inflation rate reached 131.7% in May. However, most economists believe this is understated.
Zimbabwe’s main opposition party Citizens Coalition for Change (CCC) says the country has the highest inflation rate in the world at 256%, while about 49% of the population lives in extreme poverty.
In the past few weeks, electricity tariffs have also gone up while the devaluation of the Zimbabwe dollar is also further worsening the situation.
Zimbabwe already battling electricity outages, cash shortages and unavailability of crucial medicine in hospitals. Business executives, anticipating further tightening of the economic environment have started to preserve cash.
As the Zimbabwean economy stagnates, there are increased calls for the government to abandon the Zim dollar and adopt the US dollar.
However, Finance Minister Mthuli Ncube said on Tuesday that full dollarisation will result in “nasty” effects for the economy, including negative balances in the banking sector and loss of competitiveness for the manufacturing industries.