“Blended” Inflation Rate Based On USD, Zim Dollar Adpoted

The Minister of Finance and Economic Development Mthuli Ncube on Friday announced that from now, inflation will be measured using a weighted average of items priced in Zimbabwean dollars and United States dollars.

According to Statutory Instrument 27 of 2023, “… ‘rate of inflation’ means the general increase in price levels of goods and services measured as a weighted average based on the use of Zimbabwean dollars and United States dollars over a given period of time.”

Using the blended rate, the Zimbabwe National Statistics Agency (ZIMSTAT) said the year-on-year inflation for February 2023 was 92.3% from 101.5% in January.

Previously the rate of inflation was based only on items in Zimbabwean dollars.

Before today’s move to measure the blended inflation rate, ZIMSTAT had measured annual inflation at 229.8% in January and 243.8% in December.

The government reintroduced the Zimbabwean dollar in 2019 after a decade of dollarisation.

In 2020, the multi-currency system was re-introduced and since then, the United States dollar has progressively become the dominant currency in domestic transactions, with USD usage now over 75% in the economy.

In 2022, the government said the multi-currency system would be maintained for a further five years.Business groups have opposed the exclusive use of ‘blended inflation’ as the price benchmark, saying it makes planning and accounting harder.

A household survey by Zimstat in January found that 76,56% of people’s spending is now in US$, with just 23,44% in Zimbabwe dollars.

In his monetary policy statement last month, Reserve Bank of Zimbabwe (RBZ) governor John Mangudya said it was “essential and logical that the blended rate of inflation should be the reference rate of inflation in Zimbabwe”.

He added: “It is important to note that the Zimbabwe dollar inflation is no longer a true representative of the cost of living in Zimbabwe as the country is in a dual currency system where prices and household incomes are also in both US dollar and local currency.”

But the Confederation of Zimbabwe Industries, the country’s biggest business grouping, disagrees, and recommends publishing both the Zimdollar and blended inflation rates.“While the RBZ has total control over the Zimbabwe dollar inflation rate, it has very little influence over the US dollar inflation rate, even if the US dollar is circulating within the economy,” CZI said.

“Thus, a blended inflation target without a corresponding Zimbabwe dollar target might not be appropriate from policy targeting perspectives.”