INFLATION SOARING EVER HIGHER

S E C R E T SECTION 01 OF 02 HARARE 000183 SIPDIS SIPDIS AF/S FOR BNEULING NSC FOR SENIOR AFRICA DIRECTOR C. COURVILLE USDOC FOR BECKY ERKUL TREASURY FOR J. RALYEA, B. CUSHMAN PASS USTR FOR FLORIZELLE LISER STATE PASS USAID FOR MARJORIE COPSON, ERIC LOKEN USDOL FOR ROBERT YOUNG US MISSION GENEVA FOR JOHN CHAMBERLAIN E.O. 12958: DECL: 12/31/2009 TAGS: ECON ETRD PREL PGOV ZI SUBJECT: INFLATION SOARING EVER HIGHER REF: A. HARARE 178 ¶B. TD-314/10975-06 ¶C. HARARE 098 ¶D. HARARE 046 Classified By: Ambassador Christopher W. Dell for reason 1.4 b/d ¶1. (SBU) The GOZ's Central Statistical Office (CSO) reported February 13 that the annualized rate of inflation reached 613 percent in January, up from 585 percent in December (ref D). Food and non-alcoholic beverages, which make up nearly one third of the consumer price index basket, posted an annual increase of 785 percent. The cost of housing rose by 56 percent in the month, driven largely by a huge one-month jump of 239 percent in rates. Passenger transport costs (about 4 percent of the CPI basket) increased 1507 percent for the 12-month period. The CSO reported that the total consumption poverty datum line for a family of five increased to over Z$20 million/month (US$201 at the interbank exchange rate of Z$99,200:US$1 and US$125 at the parallel market rate of z$160,000:US$1). At the same time, a family of five required Z$7.8 million/month just for food. ¶2. (C) The more respected PricewaterhouseCoopers Cost of Living Analyses put the January annualized cost of living increase at 993 percent for low-income earners, 819 percent for the high-income category, and 710 percent for middle-income earners. Driving low-income inflation was rent (up 2400 percent for the year for a 2-room accommodation), consumables (up 1919 percent) and "other food" (up 1030 percent and dominated by sharp increases in the price of sugar, margarine, salt, flour, and mealie meal- Zimbabwe's staple food). (N.B. mealie meal has practically disappeared from shop shelves around the country in the last few weeks.) The steepest annualized increases for high-income earners were in use of a second vehicle (up 1921 percent),holiday spending (up 1614 percent),and consumables (up 1573 percent). Middle-income earners experienced sharpest increases in transportation (up 3638 percent),consumables (up 1772 percent),and medical expenses (up 1406 percent). ¶3. (S/NF) Zimbabweans accept that the inflation rate is actually much higher than officially reported and Reserve Bank Governor Gideon Gono did not dispute Ambassador's contention during an encounter last week (ref A) that it exceeded 1000 percent and admitted that he was cooking the numbers to hide the true extent of inflation. Indeed, sensitive reporting indicates that a recent internal Reserve Bank study pegged the inflation rate in mid-February at 2114 percent and predicted it would continue to increase due to the Bank's inflationary policies (Ref B). -------------- Comment -------------- ¶4. (SBU) 1000 percent? 2000 percent? What really matters is that no end to inflation's trajectory is in sight. Moreover, with wages stumbling behind these extraordinary inflation figures, mid-level civil servants, soldiers and police officers, even MPs, who had once been comfortably in the middle class, now live below the poverty line. Looking ahead, the effective freezing of the official foreign exchange rate in January (ref C) will force importers to source forex on the parallel market, thus driving prices up further. Significant Treasury Bill maturities coming due in the next months will also increase money supply growth and fuel inflation. We anticipate that shortage-induced price increases will be a principal driver of inflation burdening those suffering at the bottom of the socioeconomic ladder. Street-level resistance to higher prices, as real disposable incomes shrink and consumers recover from heavy January outlays for school fees, rent and rates, will be insufficient to counter these pressures significantly. DELL