allAfrica.com: Meltdown Looms Large Amid Fear Inflation Will Hit 1000%

allAfrica.com: Meltdown Looms Large Amid Fear Inflation Will Hit 1000%
Meltdown Looms Large in Zimbabwe Amid Fear Inflation Will Hit 1000%

Business Day (Johannesburg)
NEWS
February 14, 2006
Posted to the web February 14, 2006

By Dumisani Muleya
Johannesburg

ZIMBABWE's rampant year-on-year inflation for last month surged to 613,2%, gaining 27,4 percentage points on the December rate of 585,8%, raising fears it is marching towards the 1000% mark.

The Central Statistics Office said yesterday that inflation accelerated due to rising costs of food, housing, education, water, electricity, gas and fuel.

Central bank governor Gideon Gono said recently the inflation rate would rise to 700%-800%, breaching the 622,8% record of 2004, before decelerating.

Analysts have warned that, barring a major policy shift, inflation could hit 1000% by the end the second quarter.

Analysts said that, given the controlled prices of goods and services and parallel market activities, inflation could already be at 800%.

The critical factor in driving inflation has been growing money supply through massive printing of paper money to finance government expenditure and prop up collapsing economic activities.

Broad money supply growth has been on an upward trend, from 177,6% in January last year to 411,5% in December.

Since 2003, the central bank has dished out a record Z$46- trillion in an attempt to arrest economic decline. But the money has largely ended up in consumption activities.

Further inflationary pressures have been fuelled by wage and salary adjustments, price increases and black market activities.

Following the revision of value added tax from 15% to 17,5% and introduction of a number of new tax measures in September last year, the prices of goods and services have escalated.

The yawning budget deficit of 8,6% is also a severe problem.

Government has been struggling to reduce its huge fiscal deficit largely caused by government's rising wage bill from 15,5% in 2004 to 20% of gross domestic product last year.

Zimbabwe's economy shrank 3,5% last year after a 4% decline in 2004 and a 10,5% fall in 2003.