By 
Zimbabwe’s year-on-year inflation is 147,91 percent as of May 5, significantly lower than the 191 percent pertaining early in April according to ZimStat.
The Reserve Bank of Zimbabwe Governor, Dr. John Panonetsa Mangudya believes critics play a political game when they critique without facts to unfairly criticize the apex bank yet on the ground the Foreign Currency Auction and a cocktail of other measures have brought stability to prices and the rate despite it falling against the US$ the day before yesterday.
Mangudya believes he has tamed the inflation animal as results on the ground speak for him better even citing ” …there are no more ques for cash at banks and cash like online money is readily available…and only rogue elements that have been profiteering to the expense of the economy are the economic saboteurs the central bank has been monitoring.
”In a recent one on one meeting with the RBZ Chief, TechnoMag recorded the thoughts of the RBZ Governor.
ZimStat uses a large basket of goods and services, repriced each month by looking at what is being charged in the market, and then weighs each item to incorporate it into its monthly report of month-on-month and year-on-year inflation.ZimStat, the national statistics agency, is now very carefully explaining just what inflation figures mean and how they are derived, a necessary function since so many people, as the professional graduate statisticians at ZimStat discover that what is obvious to them can so easily be misinterpreted or twisted.
Others use a formula that looks at transactions in both local currency and US dollars when making calculations, while ZimStat uses purely Zimbabwe dollars.With that in mind Governor mangudya and his team at the Ministry of Finance (MOF) and RBZ MAY INDEED BE WORKING hard to transform the economy and subsequently the citizens’ lives.
Critics however tell the Governor to sit down on this issue citing there is a falling inflation rate, and both year-on-year and month-on-month rates are falling although there are ups and downs in the month-on-month rate but the general trend is south. But this does not mean prices are falling.You need a negative rate to get falling prices and negative rates for a while to measure deflation.
But a falling positive rate means that prices are, on average, not rising so fast as they were, just as a rising positive rate means the cost of living is rising ever faster. The inflation rate does not measure the cost of living, let alone the prices of individual items. It measures the change in the cost of living and with the two sets of statistics offered by ZimStat we get the change in the cost of living over the past month and the change over the past year. So with that in mind, the Governor and MOF must consider that prices may be stable but they are not falling, and it does not mean the cost of living has improved though there are positive cut aways to take.
Recently a renowned economist, Prof Hanke also dismissed inflation figures released by the Reserve Bank of Zimbabwe for April, which were pegged at 194 percent. Said Prof Hanke: “ the Reserve Bank of Zimbabwe reported inflation in April 2021 to be 194%/yr. Nonsense. Close, but no prize. I accurately measure #Zimbabwe’s inflation every day. Today, Zimbabwe’s inflation is ranging at 155.0%/yr.”
Some economists, including Finance and Economic Development Minister Prof Mthuli Ncube, believe both figures as released by Prof Hanke and ZimStat are correct although they use different methodologies.
Prof Hanke is thought to be measuring blended inflation, which captures the use of the Zimbabwe dollar and US dollars in domestic transactions.
Governor Mangudya and Professor Ncube are understood to have directed ZimStat to publish blended inflation too. While Prof Hanke has put forward his views, the year-on-year figure “is of little significance as it includes the last of the inflation required to devalue the domestic currency last year”said one economic commentator.
“Focus should be on the month-on-month figure, which is now below 2 percent and declining. The combined inflation rate is below 1 percent. We do not expect any resumption of inflation,”.
This refers to is the rapid rise in monthly inflation, and thus year-on-year inflation until July last year, just after the switch to the foreign currency auctions both stabilised the exchange rate and made adequate foreign currency available to priority importers.
Following a transitional month, August, the month-on-month inflation was then low from September. This is automatically reducing year-on-year rates as fewer high inflation months are included in the mix, and from August this year a far more accurate measure of year-on-year inflation will appear, although with average monthly rates still falling that new figure will be higher than what pertains on the ground.The other point that ZimStat had to make is that they do not just suck the figures out of the air, or use exchange rates, either official or black market, or measure the prices of just one item or a small group of items.
What they do is measure the actual prices on a particular day each month of 495 products, all classified according to an international standard set by the technical units in the United Nations system, to be precise they use the United Nations Statistics Division’s Classification of Individual Consumption by Purpose
And they do not just pop into the nearest shopping centre to the ZimStat headquarters to do that measurement.
The team goes to more than 4 000 outlets across the country, in rural areas and urban areas, hitting supermarkets, general dealers, department stores, open markets fuel stations, council offices, restaurants, liquor stores, hairdressers, bus companies, taxis, hair salons, communication providers and anyone else who sells the listed good and services.
Obviously, no one sells all 495 products and services, although some will sell quite a few, so in the end they get 35 000 figures, an average of around 71 different prices for each product although some will have more data points and some less. And they manage to get all these 35 000 readings from more than 4000 collection points in just five days each month, so they are, as far as is humanly possible, comparing like to like.
The methodology also takes into account brands. They do not just collect the price of the cheapest or the most expensive brand, but of a particular set brand, so once again the comparison over a month or a year is comparing like to like.
The data is fed into a formula. This gets a mean price for each product, regardless of where it is sold, and then gives it a weight. For example, the cost of mealie meal may have more effect on the cost of living than the cost of a hair-do. This weighting is not based on the consumption of any single individual person or family, but again is a composite set of averages based on an actual survey of a large number of households, a sample big enough to meet the statistical rules.
So the final cost of living figure generated will not measure the actual cost of living of any particular household, and in fact it is probably impossible for it to do so as there will be fractions, something like 1,4 bags of some product. But it will measure the cost of living of your idealised average family generated the survey.
While 495 items cover a lot of territory, it will exclude many items that some families buy, although probably includes all the items that the family of a skilled worker is likely to buy. This causes some confusion in some circles, for example in households that spend a lot of money on expensive imported luxuries that are not in the 495. But it will give a far better indication of what a skilled worker in Budiriro might be buying, but even then that worker needs to have a family close to the mean and consumption close to the mean, right down to brands.
But the 495 items are now largely locally produced items, so inferences, such as the inflation rate generated from the pricing, can give some fairly solid basis for determining how the general economy is doing. So the general inflation rates generated are useful to a lot more people than just the “average family”.
The rest of the calculations are simple. ZimStat takes this month’s cost of living index, compares it to last month’s, and the percentage difference is the month-on-month inflation. As like is compared to like and even the data collection dates are the same, this gives a fair indication of any rise. Then they compare the figure for this month with that for the same month last year, and you get the year-on-year inflation percentage.
It should again be stressed that ZimStat does not attempt to measure what causes the rise, or fall, in price in any particular item in the 495 and are not concerned about the reason. They measure the rise or the fall and comment on which rises or falls are most influential in changes to the cost of living over a month, but deal purely with the facts on the ground, the actual prices and do not guess.
It needs to be also stressed that ZimStat has a great deal of independence. The Government input is limited to paying the salaries, buying the computers and the like. Politicians do not determine what data is collected or how the data is used to generate the figures. That is the job of professional statisticians, and the methodologies are checked now and then by other professionals from the International Monetary Fund, Sadc and Comesa. ZimStat passes these “audits”.
Even then, with the accurate statistics, people need to know how to interpret them. For example, the year-on-year percentage change is, as many economists now note, not particularly useful because of the sudden discontinuity from September after the exchange rate stabilised. That percentage includes the last four months of what has been described as the devaluation process or the process to get a market-related exchange rate.
Month-on-month inflation is a better guide. Those who desperately want some indication that translates into a useful figure to gauge annual inflation for prediction purposes would be far better off to take the mean of the monthly rates for the last eight months and then annualise using the compound interest formula we all learned at school.
That comes to just over 50 percent at the moment but is drifting down generally as monthly inflation is tending to fall. We will see the full effect of the far lower monthly rates from September’s ZimStat annual figure
According to Governor Mangudya, Zimbabwe may register considerable economic growth riding on the various measures put in place by Government including the forex auction system and deliberate efforts to support local production.
Another economist, Mr Persistence Gwanyanya, who sits on the Monetary Policy Committee, said: “Even the fiercest critic of Zimbabwe’s inflation figures, Steve Hanke, now seems more positive about progress on the inflation front.
“His inflation estimates are even lower than ours. Even Bloomberg recently reported positively about Zimbabwe’s progress in the inflation fight, which is a good thing. In line with the thrust to anchor inflation expectations, monetary authorities should beat the drums and shout about the success of their disinflation programme.
“Whilst prices of mainly agricultural commodities have dropped sharply recently, product prices are still to adjust as they normally do so with a lag. We should work hard on auction bottlenecks to sustain price falls and accelerate general inflation decline.”
Mr Gwanyanya said Zimbabwe was at a critical juncture as harvesting has started and tobacco foreign currency flows have begun to come in.
“However, unlike the general belief, impact of these will start to be realised from June going forward. RBZ is currently engaging support in its commitment to settle bids within 14 days of award and banks are cooperating. So we should see a significant improvement in auction payments in the weeks ahead,” he said.
He was referring to recent concerns by some importers that it was taking a bit too long for the currency they bought on an auction to be paid to their suppliers.
Economist and Zimbabwe National Chamber of Commerce chief executive Mr Takunda Mugaga spoke to this TechnoMag reporter citing “We don’t rely on Prof Hanke. ZimStat uses a methodology that is based on the United Nations agreed standards, which apply across the world.
The Governor of the Reserve Bank also alluded to this Editor that inflation is falling and through the issuance of his statements everyone is free to judge that by what is on the ground and in saying so is adamant the FCA is bearing fruit with the stability being experienced on the rate and prices.
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