Inflation: 456 Percent and Rising

UNCLAS HARARE 002074

SIPDIS

STATE FOR AF/S
NSC FOR SENIOR AFRICA DIRECTOR JFRAZER
USDOC FOR 2037 DIEMOND
TREASURY FOR OREN WYCHE-SHAW
PASS USTR FLORIZELLE LISER
STATE PASS USAID FOR MARJORIE COPSON


E. O. 12958: N/A
TAGS: ECON EINV PGOV ZI
SUBJECT: Inflation: 456 Percent and Rising



1. Summary: Zimbabwe's year-on inflation rate has risen
to 456 percent. Within months, it could spiral to hyper-
levels. End summary.


2. The recent increase takes into account the zimdollar's
hefty pre-September devaluation, when it fell from Z$2350
to Z$5600:US$1 in just two months. Zimbabwe is
increasingly import-dependent, even for basic foodstuffs.
The inflation/devaluation interplay continues to chip
away at the buying-power of most Zimbabweans.


3. Comment: For numerous reasons, it is inevitable that
inflation will head up further. a) Since September, the
GOZ has accelerated its printing of money (through larger
denominations). b) Even with lending rates as high as
130 percent, real rates are heavily negative and fuel an
inflationary demand for credit and speculative spending.
c) Zimbabwe's trade balance is worsening, mostly due to
export-unfriendly policies. d) The GOZ is threatening to
unveil new price controls, fostering an expectation of
product shortages and a run on certain items. In short,
the private sector is bracing for a populist mid-November
budget speech, where the GOZ may reintroduce lower
lending rates, higher indirect corporate taxes and new
price controls.

Sullivan