Dismal inflation numbers for Zim

Harare - Zimbabwe's inflation data for the month of May shows that the year-on-year (y/y) inflation as measured by the all items consumer price index was -2.70%, after shedding 0.05 percentage points on the April inflation rate of -2.65%.
 
According to figures released by the Zimbabwe National Statistical Agency, the y/y food and non-alcoholic beverages inflation which is prone to transitory shocks remained in the negative at -3.00%, while the non-food inflation rate was -2.56%.
 
The month-on-month (m/m) food and non-alcoholic beverages inflation stood at -0.37% in May, gaining 0.26 percentage points on the April rate of -0.63%. The m/m non-food inflation stood at -0.10%, gaining 0.91 percentage points on the April rate of -1.01%.
 
The inflation figures come on the back of tariff reductions in mobile phone charges, as well as price reductions in selected food items and fuel prices.
 
The weakening rand against the US$ has also contributed to the negative inflation which is now feared to be deflation.
 
Some analysts reckon the slow economic growth, weakening aggregate demand, high unemployment, tight liquidity, increased loan defaults and reduced lending by banks to productive sectors are all signs of deflation.

However, the country's authorities - including the Reserve Bank Zimbabwe (RBZ) - reckon that the country is experiencing disinflation, and not deflation.
 
The RBZ said price reduction in the national economy was a necessary process towards correcting the high prices obtaining in the country.

According to the RBZ governor Dr John Mangudya, the negative inflation reflects the dampening of inflationary pressures in the economy.
 
Mangudya reasons that this is on the back of cheaper imports, mainly from South Africa, and limited access to credit lines by key productive sectors of the economy.

Disinflation is a slowing in the rate of price inflation, and does not mean prices have actually declined. Instead, prices will still be increasing but at a slower rate.
 
However, deflation is a situation when the overall price level decreases so that the inflation rate becomes negative. This results in a decrease in demand in the economy, which can lead to an economic depression.