ZIMBABWE will have the world’s highest inflation rate this year, with consumer prices expected to rise by over 300% as the economy continues to collapse, according to forecas
ts by the Economist Intelligence Unit (EIU).
The EIU says Angola, another crumbling African economy, would have inflation of 115% followed by Iraq whose consumer prices are likely to rise by 75%.
At the other extreme, Hong Kong’s consumer prices are poised to fall by 2,5% from 3,70% in 2003, the fastest rate of deflation in the world, the report says.
But economist Eric Bloch said real inflation was currently over 300% and was likely to reach the 400% level in the next four months. The official rate in April was 269%.
Bloch said: “The official infla-tion rate is wrong as it is calculated according to an average person spending basket which applied in 1994 but spending patterns have changed very considerably with items such as food having far higher proportion of total spending. Food inflation is currently exceptionally high.”
He said the rate was also wrong as it was calculated on prices based on officially controlled prices while people were buying products either in different packaging or on the black market where costs were way above official prices.
The decline in agricultural output by about 60% in 2003 would lead to a steady contraction of industry as the decline in commercial farming feeds through to the rest of the economy, the Commercial Farmers Union reports.
Growing foreign currency shortages and fuel at a time of price controls, falling purchasing power and triple-digit inflation would push up production costs, creating an extremely difficult economic climate for companies and mines, the EIU says.
It said as a result, most companies would scale down their operations and shed labour, and real GDP was expected to contract by a further 8,8% in 2003.
The economic decline would slow in 2004, because many firms would already have scaled back their operations substantially, the EIU says.
The EIU said there could also be some limited recovery in food production, as the remaining commercial farmers and small-scale farmers increase maize production.
The CFU estimates production throughout the commercial sector to be reduced by 70% from what it was in 2002.
Maize production has been reduced to just 80 000 tonnes from 810 000 tonnes in 2003 while soya beans should go down to 30 000 tonnes from 162 000 in 2000.
The CFU said tobacco was down to just 65 million kgs from 229 million kgs in 2000.
New farmers are not achieving their production levels due to lack of knowledge, skills, inputs, and finance, it says, so that they do not have capacity to replace production levels that previous commercial farmers were at.