3 April 2008

Zimbabwe: Inflation Surges to 165 000 Percent

on-year inflation surged close to 165 000 percent in February, official data showed last week, underlining the weight of the task ahead for any new government.

Central Statistical Office figures seen by The Financial Gazette indicated that year on year inflation increased by 64 320 percentage points to 164 900, 3 percent in February, from 100 580.2 percent in December.

Non-alcoholic beverages, bread and cereals were the major drivers of inflation in February.

Month-on-month inflation in February surged by five percentage points to 125,9 percent from 120,8 percent in January, and 240.1 percent in December.

The new data reveals the depth of the economic crisis, which attracted more attention during campaigns for last week's elections.

Official data on inflation is largely based on the prices of goods and services under price controls.

Even though the controlled prices themselves have surged over the past month, many believe official numbers remain largely understated.

Inflation, which has eroded the buying power of the country's troubled currency, has been the focal point of government's fight to restore the faltering fortunes of the economy.

A raft of measures by the central bank and the Ministry of Finance to stem the economic haemorrhage have met with impediments as the economic crisis continues, with prices of basic food commodities escalating daily.

In December, official figures showed year on year inflation closed the year at 66 212.

However, rising interest rates as well as the disappearance of basic commodities from the formal market into the expensive informal market and the escalating fuel crisis have continued to push inflation upwards.

Last week, key accommodation rates surged from 1 200 percent for secured borrowing to 4 000 percent, and from 1 650 percent to 4 500 percent for unsecured borrowing.

Economic analysts said the decision by the Reserve Bank of Zimbabwe (RBZ) to significantly increase withdrawal limits starting this week was driven by the need to catch up with runaway inflation, which has eroded the value of the beleaguered domestic currency.

The RBZ said it will increase withdrawal limits for individuals 10 fold to $5 billion from $500 million.

The Zimbabwe dollar has been falling sharply on the parallel foreign currency market where it was fetching $40 million to the greenback last week, from $6 million in January, indicating the swift pace of inflation.

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