A note on blended inflation

About a year after banning the domestic use of foreign currency the government relented after runaway inflation and constant surges in the ZWL: USD exchange rate. Statutory Instrument 185 of 2020 was introduced which allowed people to use foreign currency including Rands, USD and Pula to make domestic transactions. Of all these, the US dollar has dominated making it the de facto second currency.

ZimStat, the government agency tasked with calculating inflation figures introduced Blended Inflation figures shortly afterwards. The rationale behind these is that since people were earning both USD and ZWL at the same time the government would track prices changes in both currencies and create a weighted average inflation figure. What it means is that the government would track changes in USD prices of items as well as ZWL prices changes and use transaction volumes to compute the ultimate inflation figure.

We do not agree with this methodology or doubt its validity which is dubious at best. Apart from the political benefits of giving lower inflation figures, there is really no use for these figures. The Institute of Chartered Accountants of Zimbabwe (ICAZ) has already directed its members to use the general inflation rate when preparing accounts. This means entities should only use the CPI and not the chimera that is the blended CPI.