US embassy cable - 03HARARE2074

UNCLAS HARARE 002074 
 
SIPDIS 
 
STATE FOR AF/S 
NSC FOR SENIOR AFRICA DIRECTOR JFRAZER 
USDOC FOR 2037 DIEMOND 
TREASURY FOR OREN WYCHE-SHAW 
PASS USTR FLORIZELLE LISER 
STATE PASS USAID FOR MARJORIE COPSON 
 
E. O. 12958: N/A 
TAGS: ECON, EINV, PGOV, ZI 
SUBJECT: Inflation: 456 Percent and Rising 
 
 
1. Summary: Zimbabwe's year-on inflation rate has risen 
to 456 percent.  Within months, it could spiral to hyper- 
levels.  End summary. 
 
2. The recent increase takes into account the zimdollar's 
hefty pre-September devaluation, when it fell from Z$2350 
to Z$5600:US$1 in just two months.  Zimbabwe is 
increasingly import-dependent, even for basic foodstuffs. 
The inflation/devaluation interplay continues to chip 
away at the buying-power of most Zimbabweans. 
 
3. Comment:  For numerous reasons, it is inevitable that 
inflation will head up further.  a) Since September, the 
GOZ has accelerated its printing of money (through larger 
denominations).  b) Even with lending rates as high as 
130 percent, real rates are heavily negative and fuel an 
inflationary demand for credit and speculative spending. 
c) Zimbabwe's trade balance is worsening, mostly due to 
export-unfriendly policies.  d) The GOZ is threatening to 
unveil new price controls, fostering an expectation of 
product shortages and a run on certain items.  In short, 
the private sector is bracing for a populist mid-November 
budget speech, where the GOZ may reintroduce lower 
lending rates, higher indirect corporate taxes and new 
price controls. 
 
Sullivan