US embassy cable - 04HARARE1490

UNCLAS HARARE 001490 
 
SIPDIS 
 
STATE FOR AF/S 
USDOC FOR AMANDA HILLIGAS 
TREASURY FOR OREN WYCHE-SHAW 
PASS USTR FLORIZELLE LISER 
STATE PASS USAID FOR MARJORIE COPSON 
 
SENSITIVE 
 
E. O. 12958: N/A 
TAGS: ECON, ETRD, EINV, PGOV, ZI, Economic Situation 
SUBJECT: Where's inflation heading? 
 
1. Summary: After studying the latest Reserve Bank 
(RBZ)/Central Statistical Office (CSO) figures and 
comparing notes with local economists, we believe year-to- 
year inflation will continue to fall to 250-320 percent 
through the end of 2004.  In early/mid-2005, it will 
again head upwards to at least 400 percent.  As 
parliamentary elections near, mushrooming inflation may 
put the GOZ in an awkward position.  End summary. 
 
2. Monthly inflation fell sharply Nov 2003-April 2004 (34 
to 5 percent) as a consequence of the GOZ's more strident 
enforcement of an official exchange rate.  During April- 
July, it rose each month to a recent 10 percent.  While 
monthly inflation will almost certainly continue to rise 
through the year's end, year-to-year inflation - the 
GOZ's historic barometer - should fall as new monthly 
figures replace peak rates during Sept-Nov 2003 (25-34 
percent per month).  The seesaw trend looks like this: 
 
MONTHLY INFLATION RATES 
 
Downward 
-------- 
Nov 2003       34 percent 
Dec            11 
Jan 2004       14 
Feb             6 
March           6 
April           5 
 
Upward 
------ 
May             6 
June            9 
July           10 
 
We feel that further devaluations both in the official 
and parallel rates as well as higher wage and fuel costs 
will push monthly CPI increases to at least 15 percent by 
December.  Sometime in early/mid-2004, the year-to-year 
rate could easily reach 400 percent.  (Ten percent 
monthly inflation, for example, compounds to an 
annualized 272 percent.) 
 
3. Comment: Using the nominal zimdollar exchange rate as 
its weapon, the RBZ has declared disinflation as its 
prime goal.  RBZ Governor Gono forecast a 200 percent 
rate by year's end, just before it peaked at the 
hyperinflationary threshold (623 percent) in January. 
Even if the year-to-year rate falls to 300 percent, the 
GOZ and RBZ will declare victory.  Celebrations may be 
short-lived.  If year-to-year inflation starts upward 
before the scheduled March parliamentary elections, it 
may complicate GOZ claims of economic rebound, even 
according to its narrow performance measure. 
 
Dell