GOVERNMENT is behind the “above normal” increases in US dollar prices witnessed last month after a slew of new taxes went into effect, a new report has shown.
Prices have gone up by about 30%.
The new taxes went into effect at the start of the year, resulting in the cost of living and business expenses rising significantly.
Consequently, businesses pass on these costs to consumers already dealing with shrinking incomes as the Zimdollar depreciated by 66,3% to US$1: ZWL$10 152,39 on the last day of January. This loss led to businesses significantly raising local currency prices.
In its January food security report, the Famine Early Warning Systems Network (Fews Net) said headline inflation increased to 34,8% owing these losses of values on currencies, up 8,3 percentage points from December.
“In January, the ZWL$ devalued by around 50% on the official and parallel markets, the steepest drop since June 2023. The devaluation has driven significant increases in basic food and other commodity prices,” Fews Net said
“Above-normal US$ price increases, over 30% for some commodities, have also been recorded, partly in response to additional tax measures and increasing production and transportation costs.”
Fews Net said the ZWL$ cost of living rose by around 45% last month and about 595% compared to January 2023.
“The devaluation of the ZWL$ and rapid increase in the cost of living is expected to particularly impact households earning in ZWL$, with the rise in US$ prices also negatively impacting household purchasing power as the lean season peaks,” Fews Net said.
Treasury introduced a slew of new taxes, levies, and fees last month.
Among them, was the restriction of zero-rated value-added tax (Vat) to just exports which previously applied to specified goods and services used by vulnerable communities.
While Treasury has since made amendments to this measure, particularly, moving the Vat exemption to a standard rating for goods and services used by vulnerable communities, prices continue to rise.
“The harvesting, consumption, and sale of seasonal wild produce such as fruits and vegetables are also significantly below normal, with the popular Mopane worms (amacimbi/madora) completely unavailable this December/January season, with availability during the second March/April season also unlikely,” Fews Net said.
It said below-normal access to income and ongoing macroeconomic challenges would likely keep poor households’ purchasing power lower than normal.
Fews Net is a food security initiative by the United States Agency for International Development.
