Home » Business » It’s Just Price Adjustment – Not Deflation [editorial]

The small fall in the cost of living over the last few months is not a sign of deflation, and in any case there are circumstances when deflation is not undesirable, but rather a long-awaited adjustment in Zimbabwean prices largely arising from the South African rand returning to its correct value, but helped along by the general global fall in oil prices.

Following the general global recession in 2008 there were larger than normal capital inflows into many developing countries, including South Africa and unfortunately a large fraction of the new inflows were not long-term investment, but rather the cash of those who like to move their money quickly around the globe seeking the best rates. But these quick-in and quick-out flows of funds artificially pushed up the value of the rand.

Since South Africa is Zimbabwe’s largest supplier of imports this tended to push up the cost of living in Zimbabwe. Everyone was upset at the time over these rises after a period of exceptionally low inflation following the switch to multi-currencies, but mainly the US dollar, in Zimbabwe.

We were getting a double dose of modest inflationary pressure, importing South Africa’s low inflation rate and paying a premium for imports because of the speculators.

With the rand drifting down many of the undesirable effects of the rand’s rise are now being reversed. And as South Africa experiences small, but real inflation this period of correction is likely to be fairly brief.

This in many ways is a pity, since Zimbabwe has seen drought this season, especially in the south. Unfortunately this is likely to mean that more imported food will be required and while Zimbabwean farmers now receive world prices is it obviously cheaper to move things grown in Karoi to Harare than moving the same things costing the same price from Kabwe or Bloemfontein or a South American port.

And most of us have noticed that petrol and diesel prices are inching up slightly. The IMF itself does not see deflation a threat to Zimbabwe and categorises recent trends as long-term low inflation. The IMF, again correctly in our view, is more worried about the slow growth in the economy. The drought and falling mineral prices will slow growth this year to around 2.8 percent, or so the IMF estimates.

In some ways this shows the resilience of the Zimbabwean economy, that we can have growth even in bad times, but obviously we would all like to do better.

Falling mineral prices, or even major fluctuations in mineral prices, make the Government’s determination to see more processing of our mineral exports in Zimbabwe even more urgent. Big fluctuations in the prices of ore or lightly processed minerals translate into far smaller fluctuations in prices of processed minerals, an aantage that will enhance the extra decent jobs and greater earnings arising from local processing.

In any case our major mineral exports — platinum group metals, diamonds and gold — are more likely to maintain prices than base metals. As Asia, and especially China, continues to grow fast, but with services providing an ever larger share of this growth, there will be g demand for industrial catalysts to clean up large polluted cities and hundreds of millions of richer Asians will be a growing market for jewellery.

We can listen to the IMF ideas on economic reform, realising that sometimes their prescriptions are not as good as their analyses, but the reforms that should be implemented are those that accelerate the implementation of Zim-Asset, the long term strategy of growing Zimbabwe’s economy by doing more with our natural resources and doing it better for the benefit of Zimbabweans.

We know where we are going and we know, very largely, what we need to do to get there. Let us stop worrying about inconsequentials and start pushing forward instead.

Source : The Herald

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