INFLATION ENDS 2005 ON A HIGH, POISED FOR INCREASE

S E C R E T SECTION 01 OF 03 HARARE 000046

SIPDIS

SECRET NOFORN

SIPDIS

AF/S FOR B. NEULING
NSC FOR SENIOR AFRICA DIRECTOR C. COURVILLE
STATE PASS TO USAID FOR M. COPSON AND E.LOKEN
TREASURY FOR J. RALYEA AND B. CUSHMAN

E.O. 12958: DECL: 01/12/2016
TAGS: ECON EFIN PGOV ASEC ZI
SUBJECT: INFLATION ENDS 2005 ON A HIGH, POISED FOR INCREASE
IN 2006

REF: A. HARARE 016871

B. TD-314/01587-06

Classified By: Ambassador Christopher Dell under Section 1.4 b/d


1. (S/NF) Summary: The GOZ,s Central Statistical Office
(CSO) reported that the cost of living increased to 585.8
percent in December, up from the annualized November rate of
502 percent (ref A). A steep increase in the price of
transportation services and food dominated the month-on-month
rise in the official figure. Sensitive reporting (ref B)
indicated that the Reserve Bank of Zimbabwe (RZB) determined
that the inflation rate through November was in quadruple
digits, but had ordered the CSO to understate the figure.
PricewaterhouseCoopers analyses put the annualized cost of
living increase at 987 percent for low-income earners,
primarily driven by the skyrocketing cost of rent plus sharp
increases in the cost of consumables and food. The CSO said
that the total consumption poverty datum line for a family of
five increased to Z$17.26 million (US$194 at the interbank
exchange rate of Z$88,700:US$1 and US$172 at the parallel
market rate of Z$100,000:US$1) in December, while the Food
Poverty Line rose to Z$6.792 million, pushing more people
into poverty as wages have not kept pace with inflation.
With steep price increases introduced in municipal services
and school and medical fees on January 1, the mood is grim
and there is no end in sight to hyperinflation. End Summary.

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Inflation Pegged Officially at 586 Percent; Quadruple-Digit
Rate More Likely
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2. (U) The GOZ,s Central Statistical Office (CSO) reported
January 10 that the annualized rate of inflation reached
585.8 percent in December, barely easing off its sharp
trajectory from 411 percent in October to 502.4 percent in
November (ref A). The average price increase in the consumer
basket was 18.3 percent for the month of December.
Transportation services were among the fastest rising items
in cost, along with bread and cereals, meat and milk. The
rate of increase in the cost of food and non-alcoholic
beverages, which make up about a third of the CSO consumer
basket, ended the year at 717 percent, while non-food
inflation stood at 522 percent. Often criticized for
producing inaccurate statistics, the CSO confirmed to the
press on January 9 that it would undertake a household budget
survey in the next months to get more accurate data about
family spending patterns and consumer price indices.


3. (S/NF) The CSO may consciously be understating inflation
by about 100 percent. According to sensitive reporting (ref
B),the Reserve Bank in late November determined that the
annualized inflation rate at that time was 1121 percent but
directed the CSO to publicly release a figure of 512 percent;
it eventually announced the 502.4 percent figure.


4. (SBU) The more respected PricewaterhouseCoopers Cost of
Living Analyses, which differentiate by income bracket, put
the December annualized cost of living increase at 987
percent for low-income earners, 747 percent for high-income
earners, and 662 percent for middle-income earners. The
month-on-month figure for the three income groups was 24.77
percent, 24.73 percent and 30.40 percent respectively.
Driving the low-income inflation rate, once again, was rent
(up 2300 percent for the year for a 2-room accommodation),
consumables (up 1560 percent) and "other food" (up 1137
percent and dominated by sharp increases in the price of
sugar, margarine, salt, flour, and mealie meal).


5. (U) The CSO also said that the total consumption poverty
datum line for a family of five had increased to Z$17.26
million (US$194 at the interbank exchange rate of Z$88,700
and US$172 at the parallel market rate of Z$100,000) in
December, while the food poverty line rose to Z$6.792
million. The cost of the low-income urban monthly consumer
basket used by the Consumer Council of Zimbabwe rose 876
percent in 2005, ending the year at Z$16.6 million.

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No Easing In Sight
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6. (U) The New Year heralded numerous sharp price hikes in
services that will continue to fuel inflation in January and
beyond. Charges at Harare,s burial grounds were set to
increase on January 1 from Z$750,000 to Z$8.5 million (i.e.
from US$19 to US$95 at the interbank exchange rate) for an
adult grave and Z$4.2 million for children. The rate is due
to rise further to Z$17 million (US$191 at the interbank
rate) and Z$8.5 million respectively in July. The Zimbabwe
Medical Association announced a sharp increase in
consultation fees effective on January 1. Patients are now
paying between Z$1 and 2 million (between about US$9 and 18)
for a consultation with a general practitioner, up from about
Z$300,000 previously, and between Z$3 and 4 million for a
specialist.


7. (U) Zimbabwe National Water Authority increased tariffs by
between 30 and 100 percent on January 1 to meet the rising
cost of chemicals used in the purification process. Water
tariffs had most recently risen by 80-100 percent in
September. (N.B. The state-controlled press reported in
mid-December that Harare municipal water failed to meet the
minimum health specifications of the World Health
Organization and of the Standards Association of Zimbabwe.)



8. (SBU) Price hikes in school fees, uniforms, and book
prices at the start of the new term this week have been a
further contentious pocket book issue. The Ministry of
Education, Sport and Culture issued guidelines in December
limiting fee hikes since the last term to 150 percent.
Nevertheless, anecdotal reports from embassy employees
indicate that private school fees have jumped about 200
percent from the August to January terms.

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Comment
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9. (SBU) In any event, skyrocketing price hikes are making
paupers out of the average Zimbabweans, who have seen their
wages stagnate and their purchasing power evaporate.
Especially hurt is the ever-shrinking middle class who must
also cope with an inescapable decline in municipal services.
While Zimbabweans remain proud that infrastructure standards
are still higher here than in most neighboring countries, the
capital,s streets, for example, are fuller than ever with
potholes after recent abundant rains. A nighttime drive in
the city is a daunting zigzag around crater-sized potholes
through unlit streets and across major intersections without
the benefit of stoplights. Garbage collection is erratic, if
it occurs at all, forcing Harare municipal government to shut
down its main vegetable market and prohibit public vending of
fish and meat to prevent the spread of isolated cases of
cholera.


10. (SBU) Christmas celebrations were somber, limited by the
high cost of food and consumables, fuel and transport, the
erosion of disposable income, and the impending January
school fee bills. Zimbabweans entered the New Year in a grim
mood without much faith that the GOZ,s oft-promised economic
turnaround would kick off any time soon. To date, however,
we have seen no signs that the ever-present grumbling of
discontent over forking over more and more cash at the
register presents an immediate danger to the regime. Ever
more resentful of a regime perceived as increasingly remote,
unfeeling and incompetent, the growing ranks of paupers
nonetheless appear overwhelmingly consumed with simply making
ends meet.
DELL