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Blended Inflation Rate Problematic For Economy - Experts

11 months agoWed, 15 Mar 2023 08:35:26 GMT
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Blended Inflation Rate Problematic For Economy - Experts

Economic commentators and trade unionists have criticised the move by authorities to use blended inflation as the benchmark of inflation reading in the country.

Last month the Zimbabwe National Statistics Agency (ZimStat) said the country will now measure inflation using a weighted average of items priced in Zimbabwean dollars and United States dollars.

Previously, the official rate was based only on items in Zimbabwe dollars in spite of the widespread use of US dollars and South African rand.

ZimStat Director General Taguma Mahonde recently told Business Weekly that the local currency inflation will not be published anymore. He said:

The S.I. 27 of 2023 which states that, “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.

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The dissemination of inflation rates with effect from the date of publication of this notice shall adopt this method of measuring inflation.

This implies that only the weighted inflation rates will be published.

For the avoidance of doubt, ZWL inflation figures will not be published as per the provision of the aforementioned SI.

Survey data revealed that 79,32 percent of the transactions occur in USD while 20,68 percent occur in local currency.

The weighted inflation reflects these ratios.

However, economic commentators say using the blended inflation rate is problematic. Economist Prosper Chitambara said:

The issue is a critical one because companies do not account in blended terms but exclusively in USDs or ZWL so it becomes an issue to have the blended rate as the benchmark inflation.

Interest rate calculation for those borrowing or collective bargaining is going to complicate things.

Chitambara said the publication of both sets of inflation rates (Blended and ZWL) should continue because most employees earn ZWL and would need to use the rate for collective bargaining.

He argued that companies also report in ZWL and will continue to need the ZWL inflation in order to prepare inflation-adjusted figures.

Accountant, Kudzanai Mugwamba, said:

It is tough to be an accountant right now because we are already struggling with which exchange rate is the most relevant one, now we are going to be comparing ZWL inflation-adjusted figures to blended inflation figures which then distorts the reporting.

Trade unionist Peter Mutasa said:

Blended inflation does not take into account the reality of most employees as they are predominantly paid exclusively in local currency as employers are refusing to pay in blended form. So this means that workers are going to be shortchanged by being underpaid and carrying the cost of exchange rate losses.

Employers will be at an advantage as they will use a lower and irrelevant inflation figure to calculate wages as there is no publishing of local currency inflation.

We will see workers not being able to feed their families because in reality local currency inflation is real and that is what they earn exclusively.

More: Pindula News

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