Inflation reduces the purchasing power of each unit of currency, which leads to increases in the prices of goods and services over time. It's an economics term that means you have to spend more to fill your gas tank, buy a gallon of milk, or get a haircut. In other words, it increases your cost of living.
The inflation rate is the percentage increase or decrease in prices during a specified period, usually a month or a year. The percentage tells you how quickly prices rose during the period. For example, if the inflation rate for a gallon of gas is 2% per year, then gas prices will be 2% higher next year.
There are two causes of inflation. The most common is demand-pull inflation. That's when demand outpaces supply for goods or services. Buyers want the product so much that they're willing to pay higher prices.
Cost-push inflation is the second, less common, cause. That's when supply is restricted but demand is not. That happened after Hurricane Katrina damaged gas supply lines. Demand for gasoline didn't change, but supply constraints raised prices to $5 a gallon.
Some sources say that an increase in the money supply also causes inflation. That's a misinterpretation of the theory of monetarism. It says the primary cause of inflation is the printing out of too much money by the government. As a result, too much capital chases too few goods. It creates inflation by triggering either demand-pull or cost-push inflation.
Some also count built-in inflation as a third cause. This factors people’s expectations of future inflation. When prices rise, labor expects an increase in wages to keep up. But higher wages raises the cost of production, which raises prices of goods and services again. When this cause-and-effect continues, it becomes a wage-price spiral.
Inflation and the Consumer Price Index (CPI)
The Zimbabwe National Statistics Agency (ZIMSTAT) uses the Consumer Price Index (CPI) to measure inflation. The index gets its information from a survey of different sectors. It records the prices of several consumer items each month. The CPI will tell you the general rate of inflation.
In Zimbabwe, the four main components of the consumer price index are: Food and Non-Alcoholic Beverages (33.5 percent of total weight); Housing and Utilities (17.7 percent); Household Contents, Equipment and Maintenance (9.9 percent) and Transport (9.8 percent). Others include: Clothing and Footwear (6.0 percent); Education (5.7 percent); Alcoholic Beverages and Tobacco (4.4 percent). Miscellaneous Goods and Services, Communication, Health, Recreation and Culture and Restaurants and Hotels account for the remaining 13 percent of total weight.
Measuring changes in average price levels requires the use of a device called an index. It is impossible to keep an accurate record of every price change for every good and service in the economy at all times. In 1914, the UK Government began to monitor food prices to help protect workers during the First World War. In 1916, price checks on clothing, fuel and a few other items were added to generate a simple cost of living index. The Zimbabwean Government uses the same criteria as a monitoring tool.
Finding "Average" Inflation
Inflation is a rise in the level of ‘average’ prices. However, there are hundreds of thousands of goods and services, and thousands of stores and outlets in an economy, meaning that recording the price changes of all goods and services in all stores would need an army of bureaucrats and would be highly inefficient. To solve this problem statisticians look at samples of products and outlets to create a general index of inflation. To be of use, the measurement of inflation must be representative of what typical households spend.
Imagine an economy, with just 4 products (A = Apples; B = Bananas; C = Carrots and D = Doughnuts. Also, imagine that, over a year, apples increase in price by 20%, bananas increase by 10%; carrots fall by 10% and doughnuts fall by 20%. You would think that these cancel each other out so that inflation is zero. But, what if consumers do not allocate their incomes evenly between the four goods? Then the burden of inflation might actually be ‘positive’ or ‘negative’ rather than neutral. For example, households might choose to spend 40% of their income on apples, 30% of their income on bananas, 20% of their income on carrots and only 10% of their income on doughnuts – in this case it is easy to see that ‘average’ prices (in terms of the effects of these price rises) have risen.
We can put this information into a table:
|Good||% Income Spent||Price Change||Price Index*||Weights**||Weighted Index|
- The index for each good is based on the number 100. A 5% price rise is an index of 105, and a price drop of 5% is an index of 95.
- The weights are based on the relative importance of the product to households – for example, if a household spends 8% of their income on chocolate, and 25% on transport, the weights would be 8 and 25 respectively.
To find the average inflation rate, we multiply the weights by the individual price index for inflation (or deflation), and then sum these and divide by the weights, as in the table above: Which gives an inflation index of 107, and an inflation rate of 7%.
Zimstat Inflation Rate
The Zimbabwe National Statistics Agency (ZIMSTAT) is a corporate body that was established through the Census and Statistics Act of 2007. The operations of the Agency are controlled and managed by the Board. The agency is the main source of official statistics in Zimbabwe and is mandated to play a coordination and supervisory role within the National Statistical System. ZIMSTAT has the authority to certify and designate any statistics produced in the country as official statistics having been satisfied that all the quality requirements of good statistics were met. Under the said Act, ZIMSTAT is mandated to produce official statistics where “statistics” means the aggregated numerical information relating to demographic, economic, financial , environmental ,social or matters at national,provincial or local level, compiled and analysed according to statistical standards and procedures.
December 2020 Inflation Rate
Blended Consumer Price Index
- The month on month inflation rate in December 2020 was 2.75 % gaining 0.50 percentage points on the November 2020 rate of 2.25 %.
- The year on year inflation rate (annual percentage change) for the month of December 2020 as measured by the all items #BCPI stood at 188.91 %.
- The #BCPI for the month ending December 2020 stood at 107.55 compared to 104.67 in November 2020 and 37.23 in December 2019.
Consumer Price Index
- The month on month inflation rate in December 2020 was 4.22 % shedding 1.07 percentage points on the November 2020 rate of 3.15 %.
- The year on year inflation rate (annual percentage change) for the month of December 2020 as measured by the all items #CPI stood at 348.59 %.
- The #CPI for the month ending December 2020 stood at 2,474.51 compared to 2,374.24 in November 2020 and 551.63 in December 2019.
November 2020 Inflation Rate
Blended Consumer Price Index
- The month on month inflation rate in November 2020 was 2.25 % gaining 0.82 percentage points on the October 2020 rate of 1.43 %.
- The year on year inflation rate (annual percentage change) for the month of November 2020 as measured by the all items #BCPI stood at 214.99 %.
- The #BCPI for the month ending November 2020 stood at 104.67 compared to 102.37 in October 2020 and 33.23 in November 2019.
Consumer Price Index
- The month on month inflation rate in November 2020 was 3.15 % shedding 1.22 percentage points on the October 2020 rate of 4.37 %.
- The year on year inflation rate (annual percentage change) for the month of November 2020 as measured by the all items #CPI stood at 401.66 %.
- The #CPI for the month ending November 2020 stood at 2, 374.24 compared to 2, 301.67 in October 2020 and 473.28 in November 2019.
October 2020 Inflation Rate
Blended Consumer Price Index
- The month on month inflation rate in October 2020 was 1.43% gaining 1.90 percentage points on the September 2020 rate of -0.47%
- The year on year inflation rate (annual percentage change) for the month of October 2020 as measured by all items blended #CPI stood at 249.63%
- The blended #CPI for the month ending October 2020 stood at 102.37 compared to 100.93 in September 2020 and 29.28 in October 2019.
Consumer Price Index
- The month on month inflation rate in October 2020 was 4.37% gaining 0.54 percentage points on the September 2020 rate of 3.83%
- The year on year inflation rate (annual percentage change) for the month of October 2020 as measured by all items #CPI stood at 471.25%
- The #CPI for the month ending October 2020 stood at 2,301.67 compared to 2,205.24 in September 2020 and 402.92 in October 2019
September 2020 Inflation Rate
- The month on month inflation rate in September 2020 was 3.83% shedding 4.61 percentage points on the August 2020 rate of 8.44%
- The year on year inflation rate (annual percentage change) for the month of September 2020 as measured by all items #CPI stood at 659.40%
- The #CPI for the month ending September 2020 stood at 2,205.24 compared to 2,123.97 in August 2020 and 290.39 in September 2019
August 2020 Inflation Rate
- The month on month inflation rate in August 2020 was 8.44% shedding 27.09 percentage points on the July 2020 rate of 35.53%
- The year on year inflation rate (annual percentage change) for the month of August as measured by all items #CPI stood at 761.02%
- The #CPI for the month ending August 2020 stood at 2,123.97 compared to 1,958.72 in July 2020 and 246.68 in August 2019
July 2020 Inflation Rate
- The month on month inflation rate in July 2020 was 35.53% gaining 3.87 percentage points on the June 2020 rate of 31.66%
- The year on year inflation rate (annual percentage change) for the month of July as measured by all items #CPI stood at 837.53%
- The #CPI for the month ending July 2020 stood at 1,958.72 compared to 1,445.21 in June 2020 and 208.92 in July 2019
June 2020 Inflation rate
- Zimbabwe’s annual inflation rate for June slowed down from 785.55% in May to 737.26% while month-on-month, the inflation rate in June was 31.66%, up 16.43 percentage points on May‘s rate of 15.23%.
- In a statement posted on its Twitter account, the Zimbabwe National Statistics Agency (Zimstat) also indicated that the Consumer Price Index (CPI) for the month ending June 2020 stood at 1,445.21, up from 1,097.65 in May 2020.
Blended CPI for June 2020
- The month on month inflation rate in June 2020 was 29.44% gaining 15.91 percentage points on the May rate of 13.53%
- The year on year inflation rate (annual percentage change)for the month of June 2020 as measured by all items #blendedCPI stood at 457.19%
- The #blendedCPI for the month ending June 2020 stood at 557.19 compared to 430.45 in May 2020 and 100.00 in June 2019.
May 2020 Inflation rate
- The month on month inflation rate in May 2020 was 15.13% shedding 2.51 percentage points on the April rate of 17.64%.
- The year on year inflation rate (annual percentage change) for the month of May 2020 as measured by all items #CPI stood at 785.55%
- The #CPI for the month ending May 2020 stood at 1,097.65 compared to 953.36 in April 2020 and 123.95 in May 2019
Zimbabwe's Blended Inflation
Government’s decision to allow entities to quote and sell goods and services in the United States dollar and the local unit has triggered confusion on which inflation index to use by companies preparers of accounts and investors. ZIMSTATS, the government’s agency tasked with producing inflation figures, has been publishing blended inflation alongside Consumer Price Index (CPI), following the promulgation of Statutory Instrument 185 of 2020, which allowed entities to quote and sell goods and services in both US$ and ZWL$.
The blended inflation, entails a combination of inflation for prices that are quoted in US$ and inflation for prices quoted in ZWL$. Zimbabwe has been experiencing significant hyperinflation and the functional currency affected most is the Zimbabwe dollar. This has confused the market on what functional currency to use for reporting.
The Institute of Chartered Accountants of Zimbabwe (ICAZ), issued a guideline following the confusion in the market. ICAZ said entities that see an increase in US$ transactions over ZWL$ transactions will need to do an assessment of whether their functional currency has changed from ZWL$ to US$ in accordance with International Accounting Standard (IAS) 21 on the effects of changes in foreign exchange rate.
It also highlighted that selection and use of the general price index in the restatement of financial statements in accordance with IAS 29 requires the use of a general price index that reflects changes in general purchasing power.
In Zimbabwe, the currency which was assessed to be in hyperinflation is the ZWL$ while the US$ is not and accountants do not need to do an assessment because this does not concern them.
“Entities that still use the ZWL$ as the functional currency should continue to use CPI and not a blended CPI in the preparation of inflation adjusted financials.
“A blended inflation adjustment index is not appropriate in the preparation of inflation adjusted financial statements as the financials are prepared in a particular functional currency (either ZWL$ or US$) and not reported in a blended currency,” ICAZ said.
- Kimberly Amadeo, , The Balance, Published: 7 April, 2020, Accessed: 17 June, 2020
- Kudzai Mutisi, , Twitter, Published: 13 October, 2020, Accessed: 13 October, 2020
- , Zimbabwe National Statistics Agency, Published: 15 August, 2020, Accessed: 16 August, 2020
- , Zimbabwe National Statistics Agency (ZIMSTAT), Published: 14 July, 2020, Accessed: 14 July, 2020
- , Zimstat, Published: 16 June, 2020, Accessed: 17 June, 2020
- Phillimon Mhlanga, , Business Times, Published: 7 October, 2020, Accessed: 13 October, 2020