US embassy cable - 04HARARE2058

UNCLAS HARARE 002058 
 
SIPDIS 
 
STATE FOR AF/S 
USDOC FOR ROBERT TELCHIN 
TREASURY FOR OREN WYCHE-SHAW 
PASS USTR FLORIZELLE LISER 
STATE PASS USAID FOR MARJORIE COPSON 
 
SENSITIVE 
 
E. O. 12958: N/A 
TAGS: EFIN, ECON, ETRD, EINV, PGOV, ZI, Economic Situation 
SUBJECT: Monthly Inflation Still in 5-10 Percent Band 
 
 
1. Summary: Despite claims in the Dec 14 Herald that 
inflation is "on a downward spiral," the rate has held 
within an approximate 5-10 percent monthly band since the 
Reserve Bank (RBZ) reasserted control over the exchange 
rate in January.  End summary. 
 
2. While the annual inflation rate has fallen from 623 to 
149 percent since January, this is more a consequence of 
Central Statistical Office (CSO) methodology.  The CSO 
calculates annual inflation by compounding the sum of the 
past 12 months' inflation, rather than by annualizing the 
current month.  Monthly CPI increases since February 
range from 4.8 to 10.1 percent: 
 
Feb  2004       6.0 
Mar             5.9 
Apr             4.8 
May             6.0 
Jun             9.2 
Jul             9.5 
Aug             5.3 
Sep             5.9 
Oct            10.1 
Nov             7.8 
 
Relying almost exclusively on an enforced exchange rate, 
the Reserve Bank (RBZ) has - with one exception since 
February - held monthly inflation in single digits.  By 
contrast, it peaked at 33.6 percent in November 2003, but 
fell rapidly after the RBZ introduced its controlled 
currency auctions in January. 
 
3. However, current monthly rates in the 5-10 percent 
range will no longer supplant double-digit rates from 
previous-year months, making it far more difficult for 
the annual inflation rate - as the GOZ measures it - to 
continue to fall.  A 5-percent rate for Sept 2005 might 
replace a 6-percent rate for Sept 2006, rather than Sept 
2003's 25-percent rate. Crunch-time will begin in mid- 
March, when the CSO releases cumulative inflation for the 
March 2003-Feb 2004 period.  Meanwhile, other factors 
seem to portend higher inflation: a) the RBZ will come 
under increasing pressure to permit a devaluation of the 
zimdollar, and b) the local fuel price will surely have 
to rise beyond the current Z$4,000 (US$.44 at parallel 
rates)/liter, the region's lowest tariff. 
 
Dell