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Zimbabwe Inflation Reaches Record Rate


11 October 2005

Zimbabwe's inflation has soared to an annual rate of 359 percent, one of the highest rates in the world.  There is little chance that the government can reverse the trend of hyperinflation without extraordinary measures.

The jump in inflation did not surprise consumers who say that prices of basic foods and essential services rise weekly.

In addition it is clear in many supermarkets that Zimbabwe-made products are disappearing from shelves and more food and essential household goods are imported from South Africa.

Economists say the unavailability of foreign currency has boosted black-market exchange rates that have in turn fueled inflation.

Foreign currency is so short that many manufacturers are unable to produce.  An international company, Dunlop, has ceased making tires for export and the domestic markets because it has no foreign currency to import manufacturing materials.

Economists say the International Monetary Fund's (IMF) recent prediction of 400 percent annual inflation by year-end will be outstripped, and one-thousand-percent is more likely.

Zimbabwe's consumer council says poverty is increasing and the amount of income needed for survival by an average family is three-times higher than a teachers salary.

The economy began to falter five years ago, after President Robert Mugabe began to seize white-owned commercial farms that produced the majority of foreign exchange earnings and underpinned the domestic economy.

Daniel Ndlela is a Zimbabwe economist and financial consultant who works in the region.  He said a revival in agriculture is the only way of containing inflation and stabilizing the economy.

"The economic fundamentals must change," said Mr. Ndlela.  "The way you deal with governance must change, the way you deal with your property rights must change.  But to address inflation per se there are many methods; there are technical ways, inflation stabilization, price stabilization, exchange stabilization techniques.  But all those cannot work until you actually address the issue of agriculture in this country.  Inflation is directly linked to the issue of the exchange rate, the exchange rate is a function of a shortage of foreign currency coming here because the economy is down, so you cannot just change inflation by applying economic or technical tools.  You have to change it fundamentally by addressing the political governance as well as economic governance."

The central bank predicted in August that inflation would stabilize at about 80 percent by December, Mr. Ndlela said this is impossible.

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