ZIMBABWE – Zimbabwe is set to experience a spat of basic commodities price increases and food shortages in the coming months due to drought and recent import restrictions, a research firm has warned.
South Africa-based NKC African Economics (NKC), cautioned that government’s Statutory Instrument 64 (SI)of 2016 was going to lead to food shortages as the country’s manufacturing sector is undercapitalised.
“We expect a build-up in inflationary pressures as a result of shortages stemming from the recent ban of certain products from the open import system… Furthermore, the expected introduction of bond notes will likely increase inflationary expectations.
“We project headline deflation to decelerate to an average of 0,8 percent in 2016,” NKC said in a report.
This comes as the national statistics agency (Zimstat) on Tuesday published its Consumer Price Index (CPI) report for July with headline deflation accelerating to 1,6 percent year-on-year in July, compared with 1,37 percent year-on-year the prior month.
The increase in headline deflation was mainly attributed to a rise in the clothing and footwear price deflation rate, which rose to 1,6 percent year-on-year in July from 1,36 percent year-on-year the previous month.
Food and non-alcoholic beverages deflation rate decreased to 3,76 percent year-on-year in July, compared with 4,04 percent year-on-year the previous month.
On a month-on-month basis, headline deflation reached 0,19 percent in July compared with 0,19 percent m-o-m inflation in the previous month.
NKC’s warning comes at a time when Industry minister Mike Bimha recently gazetted the SI which seeks to promote local production through blocking the importation of 42 select basic goods into the country.
The protectionist stance, which has riled regional trading partners, is expected to help local companies increase production.
“However, the manufacturing sector’s utilisation capacity is very low, hampered by a plethora of challenges, including liquidity constraints and aging equipment, and will consequently not be able to meet demand,” NKC said, adding the move was going to back-fire in the long run.
Zimbabwe, presently reeling from the effects of an El Nino-induced drought, has also felt the effect of the poor harvest on food prices.
“The drought effects are now starting to filter through into food prices as the food and non-alcoholic beverages deflation rate continues to ease.
“We believe the increase in deflationary pressures in July is temporary — headline deflation has been on an easing path since November 2015,” NKC said.