They say that given enough time anything is possible in economics. According to Zimbabwe’s central bank governor, Dr JP Mangudya, Zimbabwe’s inflation will probably go down to around 50% in June 2023. Is he right? Will we be able to go back to double-digit inflation so soon? While as I have said, anything is possible, it is doubtful such a feat will be achieved so soon. It is much easier to achieve triple-digit inflation than it is to get rid of it.

Our outlook for inflation is very positive, we reached a peak of 30,7% in the second half of 2022 to our great disappointment. Measures have led to a decline in inflation to 3,5% in December.

We are expecting inflation to continue to go down to between 3% and 5% and in October we are expecting inflation to be lower than that due to the measures that have been taken.

If this continues to happen we will review the interest rates after December in order to contain the downside risks of high interest rates. By June 2023 annual inflation will be around 50%.
Governor Mangudya

So what is his basis for such a positive prediction? Gold coins. According to the RBZ, the government has been able to sell over 10 000 gold coins with most being bought by companies. This, the governor said, has led to the ZWL: USD exchange rate stabilising with more and more entities opting to buy gold coins instead of going to the black market for USD. This and the reduced printing and reduced payments have led to a shortage of ZWL in the market. The government’s thinking is that a stable rate equals low inflation.

He is not wrong, but he is not right either. Inflation is not simply a function of the exchange rate. It is driven by a lot of other factors and some key drivers include energy prices. ZESA and fuel prices have been going up on a regular basis driving everything up. Also while the government has been able to resist its naughty ways of printing and spending money like sand in the short term that is going to be very hard in the long term especially a year before elections. There will be command agriculture, bonuses and other money-guzzling projects that will force them to turn on the taps. The 2023 budget shows were we are headed in terms of spending and it’s not downwards.

RBZ says annual inflation will 50% by June 2023. This is impossible! Rather, inflation will drive towards 400% – major drivers being 79% increase in 2023 budget, imminent drought, excessive elections induced spending, command economics & Ukraine crisis.
Economist Gift Mugano on Twitter commenting on the issue