Zimbabwe’s prices are continuing to go up with the price of bread now at ZWL$60 from around ZWL$45 and the country’s central bank has attributed such increases to what is deemed, in an update on reserve money, the fear factor.
Increases in the basic prices have been blamed for Zimbabwe’s cost of living that has skyrocketed to over ZWL$7 171 by the end of April this year.
The Reserve Bank of Zimbabwe (RBZ) update says, “Price determination in the economy by businesses is being established on the basis of expectations about the depreciation of the exchange rate and prices that will exist in the future.”
“This forward pricing system or practice of front-loading anticipated exchange rates in the current prices based on fear factor, is detrimental to the economy, as it leads to self-fulfilling depreciation in the exchange rate, with negative knock-on effects on prices.”
Prices increase in the background of the depreciating local currency against foreign currency and the central bank in the update on reserve money says such developments are due to behavioural and other non-monetary factors.
“Depreciation in the exchange rate, observed over the past few weeks, was largely a result of behavioral and other non-monetary factors such as negative perceptions, adverse expectations, speculative tendencies of economic agents and tracking of the Old Mutual Implied exchange rate (OMIR), which was quoted at around ZW$140/USD over that period,” reads the central bank update.
“The depreciation was divorced from economic fundamentals, as it occurred immediately after the opening of the tobacco selling season, which is traditionally associated with stability and appreciation of the local currency.”
“In addition, the introduction of the ZWL$10 and ZWL$20 notes did not represent increase in money supply but a substitution effect – from electronic dollars to physical notes,” went on the update.
Zimbabwe’s inflation on an annualised basis in May rose to 785.55% from 765.57% in April.
The country’s local currency is now trading at US$1: ZWL75 at the black market.