HomeBusiness DigestInflation deals sucker punch on Zim's poor

Inflation deals sucker punch on Zim’s poor

PRICES in Zimbabwe have risen sharply in the past week, threatening to push inflation higher and compound the misery of the poor majority battling daily to eke out a living, analysts said.

al, Helvetica, sans-serif”>Zimbabwe is in the throes of a six-year economic crisis marked by chronic shortages of foreign currency, fuel and food which analysts blame on mismanagement by President Robert Mugabe’s government.

Analysts linked the latest bout of price increases to a slide in the Zimbabwe dollar, which tumbled 66% against the greenback after it was partially floated by the central bank two weeks ago.

The southern African nation is now a net importer, and prices of basic commodities increase weekly while wages lag and pensions and savings are eroded by inflation.

In the past week alone prices of basic commodities and rentals doubled, while companies passed on their mounting production costs to already struggling consumers.

Statistics from the Consumer Council of Zimbabwe show that a low-income urban family of six needed $10 million last month to cover basic costs, up from $6,9 million in September.

Analysts say the price increases will see workers, who have borne the brunt of the economic crisis, demanding higher wages, which would trigger another round of price rises and create an inflation spiral.

“I just woke up on Monday to find that prices have doubled just like that,” Kenneth Manungo, a clerk at a Harare insurance firm who was queuing to buy bread at a local chain store said.

“I don’t know whether our employers know how much we are suffering. Sometimes you wonder if it is not better to stay home, the money is too little,” he told Reuters.

The government has branded inflation its number one enemy.

It stood at an annual 359,8% in September and analysts believe it will end the year above 400% – well beyond central bank forecasts for it to reach between 280 and 300% by December.

The worsening economic environment threatens central bank measures to put the once prosperous economy on an elusive recovery path, analysts said.

“The picture is very bleak, for the next coming months the economic situation will only get worse before it gets better,” said leading economist Eric Bloch.

“I am very pessimistic of any recovery in the short term and this means more suffering for the majority.”

The International Monetary Fund (IMF) says Zimbabwe’s economy, which has contracted by a third since 1999, was rapidly reaching a point where it would never recover to previous levels even if policy action was taken.

Production and exports in the key agriculture sector have continued to slump, resulting in persistent food shortages since 2001, which critics blame on the government’s seizures of land from white farmers to redistribute among blacks.

Farmers say the country predicts another poor season for agriculture due to shortages of inputs like fertiliser, seed and fuel while a senior government official said on Monday black farmers had failed to fully utilise the land.

Bloch said even with enough rains, Zimbabwe would have to import more food next year as farmers are ill-prepared for the 2005/6 agriculture season.

The government has said it will import 1,8 million tonnes of maize to take the country through to March 2006.

The drop in agricultural output, coupled with foreign exchange shortages and inflation, has seen industrial output shrink, with most firms operating below 30% capacity and some forced to lay off workers.

Analysts said the government should rein in expenditure, and stop subsiding loss-making parastatals. The government’s domestic debt swelled to $13,2 trillion as of October 7, from $3,3 trillion at the start of the year.

“As long as we have a high budget deficit, money supply will continue to increase, which is highly inflationary. We will not win the inflation war,” Charles Halimana, a research fellow at the Institute of Development Studies, said.

Halimana said the government should engage the international community for crucial balance of payment support to Harare, which has not received donor funds since 1999 because of sharp policy differences. – Reuter.

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