Tatenda Davis Garwi and Rodney Ruwende
Retailers have been warned against pricing their goods on the basis of inflationary expectations.
In an interview, Economic analyst Professor Ashok Chakravarti said the problem with pricing on inflationary expectations is that retailers will continuously raise their prices on the expectation that producers will increase their prices in the immediate future.
“retailers are pricing on the basis of inflationary expectations which means that producers are expecting for prices to keep on going up so they raise their prices to cover themselves from losses,” said Chakravarti.
As a consequence of this vicious cycle of price increments, Professor Charkravarti said it will thus take some time for the cost of goods to settle down. He was however optimistic that once the foreign exchange rate stabilized the prices would also become constant in retails shops.
“In a normal economy goods are priced based on the cost of production which includes the cost of labour and the cost of raw materials plus some reasonable profit added all up, however in the current economic situation retailers have moved away from normal pricing models”, he said.
Professor Chakravarti added that since Zimbabwe relies heavily on imports, the prices of goods are also determined by the exchange rate.
The observation, comes after the Reserve Bank Governor Dr John Mangudya has called for a stop to the unwarranted price hikes by local retailers which are a result of exchange fluctuating causing retailers to opportunistically rise of goods and services.
Professor Chakravarti warned retailer for relying on the foreign exchange black market rate to base their prices.
“If the prices keep going up in multiples, people will not be able to afford the goods and services then the businesses of the producers and distributors will collapse and they will be forced to realign their prices in order to stay in business.” He said.
Analysts have highlighted that the current exchange rate that the retailers are using is the one based on the informal market which is influenced by speculators and not current economic events and tends to contradict the interbank rate.
The price hikes have been a prevailing problem for Zimbabweans since late 2018 and the exchange rate has stabilized over the past months since the end of the multi currency system on the 24th of June 2019