Despite Western Sanctions: Zimbabwe's Inflation Drops Amid Economic Growth

Zimbabwe’s annual inflation rate for the month of May measured by the all items Consumer Price Index declined 0.2 percentage points to 2.5 percent on the back of price stability.

Zimbabwe annual inflation was unchanged in the previous two months at 2.7 percent thanks to the availability of a vast amount of commodities.

The Zimbabwe National Statistical Agency yesterday said the month-on- month inflation rate in May 2011 was 0.1 percent, remaining unchanged on the April rate of 0.1 percent.

This means that the rate of change in prices as measured by the all items CPI remained unchanged by an average of 0.1 percentage points from April to May 2011.

The month-on-month food and non-alcoholic beverages inflation stood at -0.07 percent shedding off 0.59 percentage points from 0.52 recorded in April.

Year-on-year food and non-alcoholic beverages inflation prone to transitory shocks stood at 2.29 percent points while non-food inflation stood at 2.60 percent.

Zimbabwe’s inflation has been on a downward trend after going up in the first month of the year, peaking at 3.5 percent.

Annual inflation ended at 3.2 percent last year – but increased to 3.5 percent in January before decelerating to 3 percent and 2.7 percent in February and March 2011, respectively.

Inflation refers to the rate at which prices of goods and services increase over a measured time scale, usually over a period of a month and one year.

Zimbabwe’s inflation target of 4.5 percent for 2011 remains achievable on the back of improved capacity utilisation in companies and increased production across all sectors of the economy.

The country now has the lowest inflation in the region brought about by improved economic management and policy consistency and predictability.

Rising prices for food, non-alcoholic beverages, health education and services for public utilities largely drive Zimbabwe’s inflation.

Rising inflation is also associated with the strengthening of the South African rand against the United States dollar given high imports from South Africa. Furthermore, a firm rand and higher commodity prices have resulted in cost-push inflation.

The major threat to the economy is the building inflationary pressures, lack of fiscal space, illegal western sanctions, a high wage bill and vulnerability of the financial sector.

Inflation is focused to remain steady as micro-economic fundamentals have recovered showing a positive trajectory.

Food security is also improving and these strides would all contribute positively to a stronger fiscal position, but more importantly disposable incomes are on the rise.

Zimbabwe’s Gross Domestic Product is expected to by 9.3 percent in 2011, one of the highest in the world.