New Wave of Price Increases: The Logic

New Wave of Price Increases: The Logic

The economy faces a fresh wave of price increases on the back of increasing RTGS/USD Premiums on both the InterBank and Alternative Markets. There is an observable trend in the chaos amongst retailers where prices of commodities are increasing by even higher margins compared to the movements in currency exchange rates. It is a matter of fact that the RTGS$ has devalued. However, the extent of the devaluation is amplified when retailers set their prices. In an effort to force USD sales from clients, they overcharge RTGS$ prices to the detriment of the customer. So in essence a product that would ordinarily cost $100 (RTGS) or $28(USD) when the rate was at 1:3.5 on the Alt Market is adjusted upwards to $150(RTGS) The retailer will extend an incentive for clients to pay a discounted USD price at a lower rate for example 1:4.2.

Zimbabwe Financial Analysis

At $150(RTGS) and rate of 1:4.2, the effective USD price is $35. To the retailer, the volatile exchange rate blesses him with an opportunity to earn an additional $7(USD) out of the same product. The $7(USD) is supernormal profit earned out of nothing! These market distortions emanate from the fact that the Forex market is asymmetrical. Consumers are not informed enough of the dynamics in the currency market because there is no Effective Mechanism to achieve allocative and pricing efficiency. We need a genuinely free market! All we explained above is coming hard on a consumer that has no additional earning capacity because most companies have not increased salaries by the same margin that prices are increasing. Also the Government cannot institute price controls as this will trigger more chaos. Our commodity prices table on this website will show you the trends in basic commodity prices in the major retail outlets.