Eric Bloch: Zimbabwe experiencing biflation!

AS the years 2001 to 2007 went by, even those Zimbabweans who had never been introduced to the subject of economics, became aware of the word inflation. 

Whether employed or unemployed, in formal or informal sector business operations, agriculturally active, living in high-density or low density areas, or otherwise, all Zimbabweans became increasingly conscious of this “creature” impairing their lives. Economists, through the media, and elsewhere, stated that inflation was a general increase of prices and a fall in the purchasing value of money.  The public at large more succinctly summarised inflation as being “everything costs more” or, having regard to cause and effect, considered inflation to mean hardship, suffering and distress.
In 2008 Zimbabweans progressively became aware of a related word — hyperinflation.  Over the preceding seven years most goods and services available in the country had almost continuously risen in prices, the levels of annual inflation were consistently at double-digit levels.  At no time in those years had, until near the end of the period, aggregate prices doubled, which would have been three-digit inflation.  But, in 2008, prices went berserk.  Initially, prices were being revised up monthly, then weekly, thereafter daily, and by the later part of 2008 prices were escalating even more rapidly than hourly.  In fact, the cost of goods was soaring upwards so fast that, upon entering a supermarket, a shopper would be motivated to run up and down the aisles in order to reach the cash till before prices went up again, albeit that the price increases generally applied to a limited number of products, for most supermarkets emulated Mother Hubbard’s cupboard — most of the shelves were bare!.
The magnitude, and rapidity, of the prices was so great that by July 2008, the then Central Statistics Office became unable to compute the rate of inflation, but by the end of that year the annualised inflation rate could not credibly be considered to be less than billions, if not trillions, per cent.  Some economists state that hyperinflation exists when inflation is in excess of 50% in any year, whilst others place it at 100% or greater per annum, and yet others apply different criteria, but the commonality is that aggregate prices are soaring upwards at a considerable pace.
In Europe and the US economists have recently been using what is tantamount to a new word in the economic vocabulary, that word being “biflation”.  In the main those economists contend that inflation and deflation is occurring simultaneously, deflation being the reverse of the concept of inflation.  Effectively, deflation is a general decrease in prices and a consequential rise in the purchasing value of money.  But the word “biflation”, being increasingly used by economists, and particularly so on websites and on economic blogs, is defined as being inflation and deflation occurring simultaneously.  The natural reaction is that that cannot be, but the users of the word contend otherwise, claiming that whilst some prices can be rising, others can simultaneously be falling.  By way of example, they cite price escalations on commodities that are traded within global markets, such as oil and cotton, whilst prices are falling on items generally traded on credit –– in view of curtailment of credit resources causing diminished market demand — such as experienced over the last two years in the US on homes and automobiles.
In 2010 Zimbabwe has undoubtedly experienced, and is continuing to experience inflation.  Charges by parastatals in general, and by Zesa and TelOne in particular, and tariffs of local authorities, have reduced, albeit not adequately so.  On the other hand, prices of various goods have risen, and in some instances very sharply so.  This has especially been the case in respect of goods emanating from South Africa, almost wholly driven by the very marked firming of the rand.  Less than a year ago the exchange rate of the rand approximated ZAR10:US$1, and now the dollar is only worth a little less than seven rand.  In effect, this has increased the cost of South African goods by about 30%, and has also caused sharp increases in the price of those Zimbabwean manufactured goods as include South African manufacturing inputs.  Various basic commodity food stuffs, such as maize meal, are necessarily being imported, due to the grievous inadequacy of Zimbabwean agricultural production, and have similarly been victims of the strengthening of the South African currency.
Thus, despite various services and other charges having declined, and hopefully continuing to do so (for indisputably some of those charges continue to be excessive), Zimbabwe is once again experiencing inflation.  Based upon the data of the Zimbabwe National Statistics Office, annualised inflation in January, 2010 was a negative 4,8% (in other words, almost 5% deflation), whilst by May, 2010 real inflation was marginally over 6%.  Since then inflation has again declined, being 3,6% in August, 2010.  So, whilst Zimbabwe has been enjoying some deflation of many services charges and prices of goods, it has concurrently been sustaining inflation on other items.  In other words, Zimbabwe is experiencing biflation!
Notwithstanding that that is the case, Zimbabweans should be heartened by the transition from inflation at almost unmeasurable levels of billions, or trillions per cent, to relatively minuscule inflation of less than 4%.  But the reality is that very few have such reaction.  More than four fifths of the population continue to struggle on incomes very markedly below the poverty datum line, being the minimum income needed for self-sustenance without endangering health, and are therefore only conscious of the instances where prices rise, and not those where they fall, for each price rise impairs their wellbeing.  Moreover, those who have been receiving, and are receiving, regular income, in the main did not experience income increases commensurate with the levels of hyperinflation that formerly prevailed.  They were, therefore, so whipped and beaten by that hyperinflation that they became oblivious to any positive changes, and can only recognise those that are negative.  Consequently, Zimbabwean consumer morale remains exceptionally low, with cognisance only of inflation, and not biflation.

 

Eric Bloch

 

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