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Zim inflation races towards 2 000%

Only weeks after warning that Zimbabwean inflation had topped 1 000%, the Imara financial-services group has now alerted investors to the fact that the figure is fast approaching 2 000%.

John Legat, Harare-based CEO of Imara Asset Management, gave the 1 000% alert in mid-April, with official confirmation coming by the end of the month.

Now Legat reports that feedback from Zimbabwean industrial companies indicates that the price of many of their products is now up by more than 2 000% year on year. Prices are driven by ever-higher input costs at point of manufacture.

Legat concludes: “This suggests current inflation is nearer 1 500% to 2 000%, which means the value of money halves in two weeks. Therefore cash needs to be spent immediately it is received.

“In economic terms, the ‘velocity of circulation’ of money will be increasing rapidly. Wages are unlikely to be rising as fast as inflation.”

Some employers are increasing wages monthly, but many businesses don’t have this option.

Says Legat: “Unlike Government, they cannot print money. They can only earn it through trading. So wages will be declining in real terms. A monthly wage buys less and less. It’s not surprising that companies are reporting a dramatic decline in their volumes.”

Government also faces a wages challenge. In response to the dramatic fall in real wages, it has approved a 200% pay rise for the army, police and civil servants. The announcement was made in April, with the increase effective from the end of May.

Legat notes: “They may need to announce another increase in a few weeks’ time.”

Further pressure on government’s printing presses is being caused as 90-day treasury bills fall due.

Legat adds: “The only way to stop the printing press is to deregulate the economy. Time is not on our side. The problems won’t go away until decisive action is taken.” — I-Net Bridge

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