Under scrutiny over rising prices and a weakening currency, Finance Minister Mthuli Ncube offered up an easy scapegoat on Tuesday; global prices are rising and there’s little we can do about it.
Ncube says external pressures take more blame for the rising prices on the shop shelves than local factors. Government has had to release 30 million litres of fuel from its reserves to lessen the impact of rising fuel prices, Ncube announced.
Inflation rose to 72.7% in March, up from 66.1% in February. Monthly inflation ended the quarter at 6.3%, which meant that Ncube missed his target to slow inflation to 4% for the first quarter.
“The impact of imported inflation started in the last half of last year. When the global supply chains were opening up, that started pushing up inflation, because it was increasing demand around the world, while supply was still constrained,” Ncube told reporters after Tuesday’s Cabinet meeting, responding to a question on missed inflation targets.
“The developed countries are reeling in higher-than-expected inflation, so we are importing that inflation,” he went on. Fuel prices, he said, have fed inflation, while there are now “disturbances in the diesel market” around the world which will make diesel fuels even more expensive.
Fuel and fertilisers are among Zimbabwe’s biggest imports. Rising prices of goods around the world means that Zimbabwe needs more US dollars this year to buy the same amount of goods.
Last year, Zimbabwe imported fuel worth US$856 million, in a year in which crude started the year at US$50 a barrel and averaged US$70. With oil now having touched double that average and expected to rise higher, Zimbabwe will have to spend much more at current consumption levels.
To soften the impact of rising fuel prices, Ncube says government has released 30 million litres of fuel from its reserves.
“We have put a cap on the fuel increase. By doing that, it means the amount of inflation transmitted through the fuel channel is therefore not as large as otherwise would have been the case had we not done that,” Ncube said.
Fuel prices remained unchanged this week, despite higher landing prices.
“We sold into the market 30 million litres of fuel from our reserves as government. We sold this at the FOB (landing) price of the previous week, so that we maintain the same price.”
Inflation was already heading higher before the Russia-Ukraine conflict, but Ncube says these factors, more than authorities’ failure to shore up the Zimdollar, are driving inflation the most.
“It’s the global factors which are not easy to deal with, but there they are. It has been less the usual parallel market effect, but more of the imported inflation, that’s been driving inflation,” Ncube insists.
The Zimbabwe dollar has moved from Z$112.8 to Z$150 on the official market since January, but it has lost even more value on the black market, where rates are double the auction rate. Demand for US dollars has increased, at a time tougher regulation by central bank is driving more businesses away from the auction and onto the parallel market for forex.