Zimbabwe’s annual ZiG inflation rose to 3.7% in September from 2.9% in August, reversing part of the decline that had taken price growth to its lowest level in decades, as higher rental, fuel and lubricant prices came under pressure from an international oil shock.

The increase, while still within the Reserve Bank of Zimbabwe’s preferred inflation range, comes at a delicate point for monetary policy. The central bank has been cutting interest rates as inflation has remained subdued, reducing its Bank Policy Rate from 35% in June to 30% and then 27.5% in September, while simultaneously seeking to strengthen the ZiG and prepare conditions for a possible transition to a mono-currency system.

In its third-quarter monetary and financial developments snapshot, the RBZ said annual ZiG inflation had remained in single digits since January, with August’s 2.9% reading representing the lowest local-currency inflation rate since 1980.

The September increase was nevertheless linked directly to external cost pressures.

“Annual ZiG inflation increased modestly to 3.7%, driven largely by higher rentals as well as fuel and lubricants,” the RBZ said.

The central bank attributed the fuel-related pressure to developments beyond Zimbabwe’s borders, saying the increase reflected “renewed tension in the Middle East, which pushed oil prices above US$100 per barrel in September 2026.”

That provides a significant test for the recent improvement in Zimbabwe’s inflation environment because fuel prices feed into transport, agriculture, manufacturing and distribution costs across the economy. A sustained rise in international oil prices could put pressure on a wider range of domestic prices, even if monetary conditions remain tightly controlled.

The September figure also marks a sharp change from August, when annual ZiG inflation fell to 2.9%. Monthly inflation increased from 0.10% in August to 0.54% in September, although the nine-month average remained relatively low.

The RBZ argued that the latest increase has not yet disrupted underlying price expectations.

“Monthly ZiG inflation averaged 0.4% in the nine months to September 2026, supported by firmly anchored inflation expectations,” the central bank said.

That distinction is central to the RBZ’s current policy position. While the September figure shows renewed price pressure, the central bank maintains that the wider disinflation process remains intact and that inflation has not entered a new upward cycle.

The policy response has consequently remained focused on gradually reducing borrowing costs. The Monetary Policy Committee lowered the Bank Policy Rate from 30% to 27.5% at its third-quarter meeting, citing the “benign inflation environment” and the need to support economic growth.

The decision is significant because Zimbabwe is attempting to move from a period of monetary stabilisation towards stronger economic activity without allowing the gains in inflation and exchange-rate stability to unravel.

The RBZ says prudent monetary and fiscal policies have helped keep annual inflation in single digits since January.

“The Reserve Bank’s prudent monetary policy stance, coupled with complementary fiscal policy measures, has kept annual inflation in single digits since January 2026,” Governor John Mushayavanhu said in the snapshot.

The central bank’s monetary position has also been supported by tighter control of reserve money. Reserve money stood at an estimated ZiG7.5 billion at the end of September, according to the RBZ, remaining within the quantitative targets agreed under the International Monetary Fund’s 10-month Staff-Monitored Programme.

The bank reported that it had met all the programme’s quantitative targets at the end of the third quarter, including the ceiling on changes in credit to the institutional public sector and the target for net official international reserves.

The external position has also strengthened. Foreign-currency inflows reached an estimated US$15.9 billion between January and September, compared with US$11.9 billion during the same period in 2025.

The RBZ said the country recorded consecutive trade surpluses during the third quarter, while foreign-currency reserves reached about US$2 billion in September, equivalent to roughly two months of import cover.

That reserve accumulation has strengthened the central bank’s ability to support the local currency. The RBZ said foreign-currency reserves backing the ZiG were equivalent to around six times ZiG reserve money and about four times ZiG deposits.

The exchange rate also remained relatively stable during the quarter, with the ZiG trading in a range of approximately ZiG23 to ZiG27 per US dollar. The parallel-market premium narrowed to below 15% during the quarter.

However, the stability has also required substantial central bank intervention. The RBZ reported that its foreign-exchange sales through its reserve requirements and policy-related interventions had reached US$2.74 billion since January.

The RBZ has also reported progress towards the conditions it has set for an eventual transition to mono-currency status. The weighted ZiG score measuring progress on the conditions precedent improved from 50.1% in August to 54.9% in September, driven by improved reserve accumulation and sustained single-digit inflation.

For households and businesses, the more immediate concern is the composition of the inflation increase. 

A rise driven by fuel and lubricants has a wider transmission effect because energy costs are embedded in transportation and production, while higher rentals increase household and business operating costs.