Cablegate: Where's Inflation Heading?

This record is a partial extract of the original cable. The full text of the original cable is not available.

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
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

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