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The Eric Bloch Column

What comes after hyperinflation?
By Erich Bloch

AS very widely foreshadowed and feared, inflation is not only continuing its high-speed upward surge, but is doing so at an ever greater pace.


fter peaking at an all-time high of 623,8% (year-on-year) in January 2004, inflation fell dramatically, creating excitement and a crisis of expectation, to 123,7% in March 2005.

Admittedly the latter was still horrendous in the extreme, and almost the highest in the world, but nevertheless it reflected a decline, in a period of 14 months, of over 500 percentage points, or more than 80%.

However, many very rightly cautioned that complacency should not set in, for not only was a continuing decline far from assured, but many of the economy’s characteristics were suggestive of that fall in inflation having been primarily due to palliative measures, rather than those as would address and remove the underlying causes of the rampant inflation.

Government was naturally very scathing of all those who expressed such fears and concerns, dubbing them as “prophets of doom and gloom”, allegedly set upon sabotaging economic recovery.

Its paranoia was of such magnitude that it was almost wholly oblivious to realities, and those realities were such that it was virtually inevitable that inflation would resume its former upward spiral, in the absence of constructive actions to transform the economy meaningfully, instead of superficially.

That oblivion to fact, complemented by governmental megalomania, which assured its endless conviction as to its omnipotence, resulted in ongoing destruction of the economy in general, with especial focus upon agriculture, tourism, and investment, massively rising unemployment, collapsing infrastructure, parastatal mismanagement and fiscal abuse.

An unavoidable economic consequence, amongst many others, was that the impressive downward movement in inflation was halted, and then reversed.

From an annualised inflation rate of 123,7% in March 2005, inflation more than doubled, to 254,8%, within the next following four months to July 2005.

In the next following four months inflation almost doubled again to 502,4%, and rose by nearly 56% within the next three months to February, when inflation reached an all-time high of 782%.

Arguments will, as it already does, rage widely and furiously as to the causes of the rampant upsurge in inflation.

Government will continue its vigorous endeavours to deflect all blame, doing so by using its greatly honed skills of attributing blame to others, usually coupled with contentions that such others were doing so from diabolical motives of achieving the overthrow of government, or the destruction of Zimbabwe, or Zimbabwe’s permanent subjugation, or all three.

The political opposition reciprocally ascribes all blame to government. Irrespective of political considerations, government cannot be absolved from blame, for it is its bounden duty and obligation to the Zimbabwean populace to subordinate its political ideologies and objectives to whatsoever is necessary to assure the well-being of the populace, including ensuring a good and sound, developing, positive economy.

Others will blame the monetary authorities and especially so when their policies are seen to be the causes of distorted exchange rates and particularly so within the “alternative” markets, money supply growth, scarcities and gargantuan rises in interest rates.

This has been very pronounced in recent weeks, in part as a consequence of the 169 percentage point increase in the rate of inflation in February, and to a major extent because of the disclosures that the Reserve Bank had been engaged in the purchase of foreign currency at exchange rates markedly different to the “frozen” interbank foreign currency market rates, and also to a major extent because those purchases were funded by very greatly increased printing of money.

This writer acknowledges that printing of money is very often a major fuellant of inflation, but has argued that has not necessarily been the overriding cause of recent inflationary movements. Some strongly disagree, to which they are entitled.

I readily acknowledge that I may be wrong, but as yet have to be convinced — and not by those who condemn after admitting to reading only 40% of my contentions, and who shield behind anonymity and insult, concurrently with false allegations of my vested interests, in marked contrast to constructive reasoning by a respected columnist in another leading weekly business news paper.

In remaining of my expressed opinion on the recent mammoth money-printing, I am conscious of the views of Jerry Schuitema, in his excellent book Econosense, where he says: “Monetarists claim that excessive printing of money is the cause of inflation. But it is really just a symptom … Saying that inflation is caused by too much money creation is the same as saying that you are getting wet because you don’t have a roof over your head. You surely cannot ignore the fact that the real reason for your sorry state is that it is raining!”

And, when it comes to inflation, it is certainly raining in Zimbabwe. The deluge is due to many factors. One of the most pronounced is inflation itself. It is the enormity of Zimbabwe’s inflation that is a major cause of further, immense inflation. Very understandably the country’s workers, oppressed by a continuing erosion of their minimal spending power, demand wage increments commensurate, at the least, with inflation. Employers cannot, save with rare exception, agree to give those increments unless they concurrently increase prices of their goods and services commensurately. That is inflation!

In like manner, when parastatals raise their charges (for electricity,)

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