What Price-Level Data Tells Us About Consumer Price Rigidity in Zimbabwe: Evidence From New Data

27 May 2016
Publication Type: Working Paper
JEL Code: D21, D40, E30, E31

This paper documents the price setting behaviour, and the change in this behaviour, amongst retail firms after the introduction of the new currency system in Zimbabwe. We use sample data which covers 291 products to investigate whether prices became more flexible (rigid) and to track the adjustment process as Zimbabwe moved further away from the date the new currency system was introduced. We find evidence that prices became more flexible with time although this change is relatively small compared to the variation in the frequency of price changes between months. Compared to Lesotho and Sierra Leone, prices in Zimbabwe are stickier with more than 75 percent of products in the dataset not changing prices from the previous period. Over half of all absolute price changes are greater than 5 percent indicating that when price changes do occur, they are relatively large. Overall, the findings of the paper fit with the ‘stylised facts’ emerging about the micro aspects of price adjustment.

Working paper 609
1 May 2016