Inflation Hits 526 Percent

UNCLAS HARARE 002255

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 EFIN EINV PGOV ZI
SUBJECT: Inflation Hits 526 Percent



1. Summary: Year-on-year inflation has reached 526
percent. Jarred by spiraling prices, Zimbabweans
anxiously await Thursday's budget speech. End Summary.


2. The Central Statistical Office's most recent inflation
figures encompass October 2002-October 2003. Basic foods
and transportation are now beyond the reach of most
Zimbabweans, whose salaries continue to lag inflation.
(Local joke: "Your take-home-pay no longer takes you
home.") Even more worrisome, an alternative
PricewaterhouseCoopers consumer price index demonstrates
that the poor bear the brunt of high inflation. The
accounting firm pegs October inflation for high, medium
and low income Zimbabweans at 13, 17 and 39 percent,
respectively.


3. Comment: Still, neither official nor unofficial
figures tell the whole story. For example, rail
transport, far cheaper than intercity buses, is often
unavailable due to the GOZ's inability to afford imported
diesel. (Thanks to nearly-free electricity from South
Africa, Zimbabwe's few electric trains run more
reliably.) Given its limited fiscal and monetary
options, the GOZ can probably not rein in inflation
without raising interest rates, currently about 400
percent negative. But few contacts believe the GOZ will
take that route when it unveils the 2004 budget on
Thursday. More likely, the GOZ will blame the economy's
ills on the parallel currency market and place new
restrictions on business activity.

Sullivan