Top economist says blended inflation calculation method not good for workers

By Own Correspondent

TOP economist, Doctor Prosper Chitambara has challenged the recently introduced inflation calculation method saying it will distort the cost of living and shortchange the country’s working class.

Last month Finance Minister ,Mthuli Ncube  introduced what he describes as a new realistic inflation calculation method which captures price movements  as determined by the dual currency nature of the economy.

The measures are enshrined under Statutory Instrument 27 of 2023 now considers price movements margins as reflected by economic reflections.

“In this notice— the  “rate of inflation” means the general increase in price levels of goods and services measured as a weighted average based on the use of Zim$  and US$  over a given period of time.

“Going forward, the dissemination of inflation rates with effect from the date of publication of this notice shall adopt this method of measuring inflation,” the SI said.

But speaking to The Worker recently, revered economist, Doctor Prosper Chitambara dismissed the new method saying it does not reflect the realities on the ground.

“It is indeed problematic especially after considering that most workers in the country are still being paid in the Zim dollar.

“So to then come up with an inflation tracking mechanism focused on both the US$ and ZWl simply means that the greenback, which already enjoys a transaction ratio of 70:30 against the local currency risks becoming the determinant power in setting the inflation rate.

“Therefore the method distorts inflation tracking and wrongly influences Collective Bargaining Agreements  as it gives employers the opportunity to shun salary increments on the pretext that inflation is declining,” he said.  

In an analysis of annual inflation trends , the Confederation of Zimbabwe Industries (CZI) warned that  Ncube’s decision – the third such a move in about 15 years - would have grave consequences on the economy.

“US dollar is now the dominant currency in Zimbabwe’s money supply and over 75% of spending is now in the US dollars,” the CZI said.

“As the proportion of US dollar expenditure continues to increase in the Zimbabwean economy, blended inflation will be under control, since the US dollar is a stable currency. However, blended inflation is of no significant use for economic agents who are holding Zimbabwean dollars and US dollars and want to make decisions on what to do with the holdings.

“It is prudent for Zimstat to publish inflation figures separately as Zimbabwean dollar and US dollar inflation, as this would go a long way in business planning for the future,” it noted.

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