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Inflation round-up


When an economy collapses, as Zimbabwe's did a decade ago, it can take a long time to pick up the pieces. In such dire circumstances, institutions and the services they provide can deteriorate, making things like accurate data collection impossible. Governments which spend too little time repairing vital information resources may not even be able to tell just how much trouble they're in.

When Zimbabwe replaced its currency with the US dollar in 2009, inflation dropped overnight from an estimated 79.6 billion percent to virtually zero, where it remained until late 2017. While this sounded like a great solution, and did indeed provide some badly-needed stability, it gave the false impression that all was, if not well again, then at least significantly better. In fact, all that had happened was that the government, by abandoning the almost worthless Zimbabwe dollar, had been forced to stop printing money. The instant disappearance of price pressures proved that the cause of the world's highest-ever recorded inflation had been the government's excessive money printing.

Unfortunately, the monetary reform did little to stimulate recovery of the devastated economy. Nor did it help rebuild institutions, without whose information appropriate reforms couldn't be devised (although they were unlikely anyway with Robert Mugabe clinging to power until he was finally ousted last year). A new president, Emmerson Mnangagwa, is now in charge, but he belongs to the same old party, Zanu-PF, whose policies brought the economy to its knees under Mugabe in the first place.

Despite some laudable changes, there is little sign of great improvements in people's lives and their distrust of government is growing again. Although the US dollar is the preferred currency (the South African rand is also used), there are serious shortages of hard cash in circulation, largely because the weak economy produces too few exports to build foreign-currency reserves. So the government a couple of years ago introduced 'bond notes', valued one-to-one with US dollars, hoping to make up the shortfall.

Bond notes might have sounded like a good solution, but they meant the government was actually going back to the bad old days and printing money again. All countries with their own currencies do that, of course, but most central banks keep a close eye on how much new money they introduce, so that they don't stoke inflation by increasing the money supply without also being sure the overall 'worth' of the economy has grown.

Because of Zanu-PF's poor record of economic management, it's unsurprising that people don't trust them to be as careful as other governments. In order to pay civil service salaries and meet other spending commitments, the temptation to print more and more bond notes must be compelling, given that tax revenues remain insufficient.

The government denies excessive money printing, but critics say that is exactly what's happening and that it's the cause of a recent significant rise in inflation. As more currency is introduced, the real value of individual units quickly depreciates, so prices go up. Certainly, bond notes are no longer exchanged one-for-one with US dollars - estimates of their street value fluctuate wildly. Trust in bond notes is declining so much that, as one of ECA's International Data Researchers recently discovered on a fact-finding mission to Zimbabwe,  most people now use credit/debit cards and electronic means of payment, such as the Eco-Cash app, or Swipe (an alternative type of bank account), both of which can be pre-loaded with funds and used to pay for most things and in most places. While these payment methods solve problems for residents, including expatriate staff, they are helping to turn Zimbabwe's monetary system into a complex multiple-exchange-rate regime, and regular readers will know how well those usually turn out.

Indeed, having done so little over decades to improve either the economic or governance structures in Zimbabwe, the government appears to be finding it increasingly difficult to calculate just how quickly inflation is rising. This task is made even harder by the fact that retailers will offer different prices or discounts depending on which means of payment is used (guess which one gets no discount!). Media talk of inflation already being in the region of 40% or 50%. Some expatriates working in Harare have also warned of rapid price rises. But the government says annual inflation was only 5.4% to the end of September 2018 (see first table below).

Needless to say, the official figure is widely distrusted and, as always, there is little the long-suffering people of Zimbabwe can do about it. Their wage rises are unlikely to be reflecting reality. For international assignees and global mobility teams, however, ECA, as always, can help.

Our September 2018 Cost of Living Survey is due for publication by the end of November and will show that Zimbabwe's inflation has indeed risen alarmingly, reaching well into double figures (around 15%), although not as high as some headlines would have us believe. The indices ECA produces, through its multi-faceted data-collection system, will always give a more accurate picture of expatriate inflation than can ever be obtained from national statistics agencies, governments or media. This is true of all 196 countries ECA publishes cost of living data for, of course; not just Zimbabwe.

On watch! (notable rise in inflation, but below 10%)
Country Latest CPI Data month Up from
Kenya 5.5% Oct-18 4.0% Aug-18
Mongolia 7.8% Jul-18 6.2% May-18
Myanmar 8.6% Sep-18 7.6% Jul-18
Philippines 6.6% Sep-18 5.2% Jun-18
Uruguay 8.3% Sep-18 7.2% May-18
Zimbabwe 5.4% Sep-18 2.9% Jun-18

Venezuela has a long way to go to beat Zimbabwe's record inflation levels, but it's getting there (see next table). Latest annual inflation (according to the National Assembly) of 833,997% is approaching the IMF's end-of-year forecast of 1.37 million percent. Unless the government takes drastic steps such as Zimbabwe's did in 2009, inflation won't stop there, either. The IMF's latest forecast for Venezuela's 2019 inflation is ten million percent!

High-inflation countries (CPI 10%+)
Country CPI % Last reported Trend IMF 2019 forecast
Angola 21.8 Sep-18 ▲ Rising 15.8
Argentina 40.5 Sep-18 ▲ Rising 31.7
Egypt 16.0 Sep-18 ► Stable 14.0
Ethiopia 12.1 Sep-18 ▼ Falling 9.5
Haiti 14.6 Sep-18 ► Stable 11.6
Iran 31.4 Sep-18 ▲ Rising 34.1
Liberia 26.1 Jul-18 ▲ Rising 24.5
Libya 12.1 Apr-18 ▼ Falling 17.9
Nigeria 11.7 Sep-18 ▼ Falling 13.5
Sierra Leone 19.2 Sep-18 ▲ Rising 13.1
South Sudan 49.1 Sep-18 ▼ Falling 91.4
Sudan 68.6 Sep-18 ▲ Rising 49.2
Turkey 25.2 Oct-18 ▲ Rising 16.7
Venezuela 833997.0 Oct-18 ▲ Rising 10 000 000.0
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