Good news on Zim inflation -- or is it?

SAPA via Mail and Guardian (SA) ^ | 20 January 2004

[Clive]

Zimbabwe's year-on-year rate of inflation fell 21% to 599% in December, the first decline in the country's skyrocketing cost of living in 18 months, according to official figures released in Harare on Tuesday.

The state's Central Statistical Office reported that the annual rate dropped from 619,5% in November to 598.7% in December. Measured month-on-month, the increase slowed from a record 33% in November to 11% in December.

The reported trend surprised economists, who pointed out that even the government had forecast inflation would rise to 700% in the first quarter of this year, while some private institutions predicted it would break the 1,000% barrier by the end of March.

Zimbabwe's economy has been in accelerating crisis for the past four years, and the country has the fastest-shrinking gross domestic product in the world -- 40% in four years -- and the highest inflation.

The state-controlled Herald newspaper claimed the lower rate was a sign that a crackdown by the central bank "has started to pay dividends".

However, economists pointed out that the new measures, to control rampant speculation and fraud in the financial sector and introducing foreign currency auctions, had been announced by new Reserve Bank Governor Gideon Gono only in mid-December, and some of the key measures came into effect in January.

"I expected that the rate would go up 25% on the previous month," said economist John Robertson, who issues monthly analyses of inflation.

"I can't believe that municipal rates and rents [increased by more than 500%] have been included in these figures. It looks as if there has been a bit of doctoring. The bulletin is different from the usual issue."

Economists blame the crisis on corruption, reckless and arbitrary economic policy and a regime of violent repression under President Robert Mugabe's rule, particularly in the past four years when a campaign of lawless seizures of white-owned land wrecked the country's agricultural industry, formerly regarded as "the breadbasket of Africa".

"At best, this is a blip on the screen," said a senior banking executive who asked not to be named.

"The government has done nothing about the macroeconomic fundamentals that are driving this collapse, and the multilateral institutions are not going to touch Zimbabwe while this kind of regime is in control." -- Sapa

[Clive]

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[cyborg]

As long as Mugabe is in charge, you can forget about any foreign investments. He and his government are way too unstable.

[JasonC]

I'm actually not surprised at a slowdown in the (still very high, obviously) inflation rate. They made it legal to trade the currency. That has to make it more valuable to hold the currency. Hyperinflation is currency repudiation, the refusal of the people to regard as actual money what the government tries to designate as such. People spend the currency as fast as they get it, because to be left holding it is to be the patsy that takes the losses as the value evaporates.

But a currency that can legally be exchanged for a real store of value experiences some demand. The repudiation is less intense than it was when currency trading was illegal. It does not fix the problem - only ceasing to print on the one hand, and raising the goods the paper is chasing on the other hand (by returning productive assets to real owners instead of looters) can do that. But it was a step in the right direction to legalize currency trading, and it is not surprising that it made some difference in currency demand.

[blam]

"It looks as if there has been a bit of doctoring. "

No, can't be!