Official inflation stood at 5.34% in January 2022 shedding 0.42 percentage points on the December 2021 rate of 5.76% as per figures released by Zimstat. The y-o-y inflation for the month of January 2022 stood at 60.61%. Y-o-y Inflation was measured at 60.7% in December 2021. The country is facing inflationary pressures emanating partially from benchmarking or indexation of prices of goods and services at the parallel market exchange rates.
Going into 2022, the rainy season has been characterised by a late start as well as cyclone Ana and Batsirai. Zimbabwe is on high alert as parts of Manicaland province have already experienced strong tropical winds. Agri output projections have been trimmed, with area planted for tobacco and maize declining 10% and 6% respectively. Easing supply conditions are expected to contribute to plateauing agricultural commodity prices.
The year began with a series of transactions, some spill overs from prior year. CBZ obtained approvals at an EGM on 31 January to complete its proposed acquisition of FML. The transaction will result in the creation of a significant insurance and property cluster. Lafarge Zimbabwe Limited published a cautionary statement amidst newsflow of a potential disposal by anchor shareholder Holcim that has been exiting similar assets across Africa. We anticipate sustained corporate activity throughout they year, particularly consolidations as companies look to shore up balance sheets and earnings capacity.
The valuations gap experienced over the last 18 months has now been closed. The majority of stocks are trading at rich multiples relative to current earnings capacity. Whilst revenue run rates will remain positive, we anticipate continued narrowing of margins as cost lags catch up. However, the ZSE is likely to maintain its role as both a currency and inflationary hedge despite demanding valuations. We encourage investors to be highly selective on stock picking, potentially waiting for temporary weakness/proft taking to accumulate into quality names.
