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Cablegate: Soaring Cost of Living Hits Working Poor Hardest

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

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
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.

-----------
Methodology
-----------

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.

-------------------------------------------
Low-income Earners Hit Hardest by Inflation
-------------------------------------------

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.)

---------------------------------------
Middle Income Earners, Better Protected
---------------------------------------

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.

--------------------------------
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.

-------
Comment
-------

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

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