US embassy cable - 05HARARE1448

UNCLAS SECTION 01 OF 02 HARARE 001448 
 
SIPDIS 
 
AF/S FOR B. NEULING 
NSC FOR SENIOR AFRICA DIRECTOR C. COURVILLE 
AFR/SA FOR LOKEN, COPSON 
TREASURY FOR RALYEA, CUSHMAN 
 
E.O. 12958: N/A 
TAGS: ECON, EFIN, PGOV, PHUM, ZI, Economic Situation 
SUBJECT: SOARING COST OF LIVING HITS WORKING POOR HARDEST 
OF ALL 
 
REF: HARARE 1356 
 
1.  Summary: Soaring inflation has hit Zimbabwe,s working 
poor hardest of all income earners, according to 
PricewaterhouseCoopers, September 2005 Cost of Living 
Analyses.  While the GOZ,s Central Statistical Office 
reported September,s overall year-on-year inflation rate at 
359.8 percent, up from 265 percent in August, the 
PricewaterhouseCoopers analyses pegged the figure at 543 
percent for the low-income category, driven primarily by 
steep increases in the price of consumables and 
transportation.  The cost of living for the middle-income 
category rose by 373 percent.  High earners suffered 451 
percent inflation.  However, this group has the greatest 
flexibility in spending and many of these people have access 
to hard currency that can insulate them from soaring 
inflation.  End Summary. 
 
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Methodology 
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2. PricewaterhouseCoopers, Cost of Living Analyses take a 
more sophisticated look at the cost of living than the 
reports regularly issued by the Central Statistical Office. 
The accounting firm breaks down consumers by income category 
) low, middle and high.  It also applies different 
consumption baskets for each group, which explains why the 
increase in cost of items such as transportation, 
accommodation, or school fees varies markedly across the 
three categories. 
 
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Low-income Earners Hit Hardest by Inflation 
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3.  PricewaterhouseCoopers,s September 2005 Cost of Living 
Analyses pegged annualized low-income inflation at 543 
percent, and the monthly increase at 50 percent.  The 
low-income category includes unskilled and semi-skilled 
employees governed by trade unions and other wage agreements. 
 Maximum monthly income in this category is Z$5.1 million 
(US$196 at the official exchange rate; US$56 at the parallel 
rate).  Very steep price increases in consumables and 
transportation drove the surge.  The cost of a low-income 
basket of consumables jumped to 957 percent on the back of 
price explosions in washing powder (1285 percent), bath soap 
(929 percent), toothpaste (921 percent) and laundry soap (846 
percent).  Transport costs (measured by commuter omnibus 
rates and the Harare-Bulawayo bus fare) rose 1004 percent 
since September 2004 (reftel).  The cost of rent (a 2-room 
accommodation) also exploded by 2208 percent.  The analysis 
shows the cost of schooling having risen by 893 percent with 
fees for the lower grades up by 1036 percent. (Comment: An 
Embassy spot study of the cost of school fees for FSNs' 
children earlier this year arrived at somewhat lower numbers 
than the PricewaterhouseCoopers' analysis. While the 
accounting firm's figures may not be definitive, they are, 
however, illustrative of the cost of living pressures across 
the shopping basket and across income brackets. End Comment.) 
 
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Middle Income Earners, Better Protected 
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4.  The PricewaterhouseCoopers analyses pegged the annualized 
increase in cost of living of the middle-income group ) 
supervisory and management staff - at 373 percent.  The 
biggest jumps came from transportation (2308 percent), 
consumables (884 percent), vegetables and fruit (524 
percent), meats (497 percent) and medical care (469 percent). 
 The lowest rates of increases in the middle-income shopping 
basket were in school fees (184 percent) and housing (245 
percent), which reflected the cost of utilities, maintenance 
and repair of an owner-occupied residence. 
 
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High Earners ) Room to Maneuver 
-------------------------------- 
 
5.  In the high-income category of senior executives, the 
sharpest increase in the cost of living, which registered 451 
percent overall, came from maintaining the spouse,s car 
(1136 percent), vacation spending abroad (1026 percent) and 
spending on consumables (776 percent).  All of which can be 
easily reduced as need be.  The lowest-paced increase in this 
income group came from housing (165 percent), domestic worker 
wages (450 percent) and medical costs (444 percent).  This 
group,s relatively greater access to forex is another 
significant hedge against the effect of inflation on their 
spending patterns and lifestyle. 
 
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Comment 
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6.  Middle and high-income earners can withdraw to their 
lien-free homes (hyperinflation,s silver lining), draw on 
well honed coping mechanisms, and ride out the hard times in 
the comfort of low-cost hired help.  Low-income earners, on 
the other hand, are trapped in a dismal box.  Operation 
Restore Order put extraordinary pressure on low-income urban 
rent rates; there,s no way round the high commuter 
transportation costs but to walk, and walk the workers do, 
for miles and miles, morning and evening.  The working poor 
diet has been stripped down to subsidized mealie meal, 
assuming they,ve squirreled away enough sacks to bridge the 
shortages, with a scoop of greens and the very occasional 
grisly beef stew.  How any low-income earner can maintain the 
dignity of good personal hygiene against the cost of soap and 
washing powder is anyone,s guess.  Paying school fees (let 
alone the cost of school uniforms) is a supreme burden to 
low-income earners in a country that long prided itself on 
free, universal education. 
 
7.  The impact of inflation on these various groups also 
helps explain Zimbabwe,s continuing political stagnation. 
Protests against the deteriorating economic situation would 
normally be expected from the working poor, but they are 
completely consumed by the grind of eking out an existence. 
The better-fed professionals and small business owners, with 
their access to forex, may have time to consider the 
Government,s economic mismanagement and increasing 
abridgment of civil rights, but to date have had little 
incentive to speak out.  That may change, however, if the 
decline continues to accelerate and begins to have a greater 
affect on their living standard as well. 
 
DELL