Inflation continues to decline

Published: 30 August 2013

The country has been recording low levels of inflation and this has been a good sign of stability in the economy.

For most sectors such as property the stability of inflation gives the advantage of predictability and enforces confidence in investment and savings.

However there is always the need for moderate inflation within an economy because too low inflation may hinder economic growth.

Annual inflation in Zimbabwe declined by 0.62 percent in July 2013 to stand at 1.25 percent from the June 2013 rate of 1.87 percent as reported by the ZimStats.

Factors underpinning the decline in annual inflation in May 2013 include communications (-13.13 percent); maintenance and repairs of dwellings (-4.84 percent); non-alcoholic beverages (-3.35 percent); electricity, gas and other fuels (-1.42 percent), and clothing and footwear (-0.38 percent).

On the other hand, factors that exerted upward pressure on annual inflation included rental for housing (22.36 percent), education (12.56 percent) and tobacco (9.28 percent).

The major advantage of moderate inflation is that it enables the adjustment of prices and wages.

For example, it may be difficult to cut nominal wages (workers resent wage cut). But, if average prices are rising, it is easier to increase good workers’ wages more than unproductive workers.

The other reason for moderate inflation is that it can boost growth.

At times of very low inflation the economy may be stuck in a recession.

Arguably targeting a moderate rate of inflation can enable a boost to economic growth. This view is controversial. Not all economists would support it. However, some would target higher inflation, if the economy was stuck in a prolonged recession.
- herald

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