Monthly Inflation Still in 5-10 Percent Band

UNCLAS HARARE 002058 SIPDIS STATE FOR AF/S USDOC FOR ROBERT TELCHIN TREASURY FOR OREN WYCHE-SHAW PASS USTR FLORIZELLE LISER STATE PASS USAID FOR MARJORIE COPSON SENSITIVE ¶E. O. 12958: N/A TAGS: EFIN ECON ETRD EINV PGOV ZI SUBJECT: Monthly Inflation Still in 5-10 Percent Band ¶1. Summary: Despite claims in the Dec 14 Herald that inflation is "on a downward spiral," the rate has held within an approximate 5-10 percent monthly band since the Reserve Bank (RBZ) reasserted control over the exchange rate in January. End summary. ¶2. While the annual inflation rate has fallen from 623 to 149 percent since January, this is more a consequence of Central Statistical Office (CSO) methodology. The CSO calculates annual inflation by compounding the sum of the past 12 months' inflation, rather than by annualizing the current month. Monthly CPI increases since February range from 4.8 to 10.1 percent: Feb 2004 6.0 Mar 5.9 Apr 4.8 May 6.0 Jun 9.2 Jul 9.5 Aug 5.3 Sep 5.9 Oct 10.1 Nov 7.8 Relying almost exclusively on an enforced exchange rate, the Reserve Bank (RBZ) has - with one exception since February - held monthly inflation in single digits. By contrast, it peaked at 33.6 percent in November 2003, but fell rapidly after the RBZ introduced its controlled currency auctions in January. ¶3. However, current monthly rates in the 5-10 percent range will no longer supplant double-digit rates from previous-year months, making it far more difficult for the annual inflation rate - as the GOZ measures it - to continue to fall. A 5-percent rate for Sept 2005 might replace a 6-percent rate for Sept 2006, rather than Sept 2003's 25-percent rate. Crunch-time will begin in mid- March, when the CSO releases cumulative inflation for the March 2003-Feb 2004 period. Meanwhile, other factors seem to portend higher inflation: a) the RBZ will come under increasing pressure to permit a devaluation of the zimdollar, and b) the local fuel price will surely have to rise beyond the current Z$4,000 (US$.44 at parallel rates)/liter, the region's lowest tariff. Dell