Zimbabwe: From falling prices to 3-digit inflation in 30 months

Zimbabwe has gone from deflation to triple-digit inflation in less than three years.

The statistics office said on Monday that annual inflation surged to 175.7% in June from 97.9% in May. That’s only 29 months after Zimbabwe’s consumer prices started rising again following years of deflation.

Inflation in the southern African nation peaked at 500 billion percent in 2008, prompting the government to abandon the Zimbabwe dollar. The government last month announced the return of a national currency and said foreign ones – such as the U.S. dollar and South African rand that was widely used over the past decade – won’t be accepted as legal tender anymore.

Instead, a quasi-currency known as bond notes, which can’t be traded outside the country, and their electronic equivalent, the RTGS$, will be termed the Zimbabwe dollar.

Hyperinflation

“The annual inflation may end conservatively at between 200% and 300%,” said Prosper Chitambara, a senior economist at the Labor and Economic Research Institute in Harare. “With the reintroduction of the local currency, this will put pressure as there is no production. You don’t introduce more currency when there is no production because that on its own causes inflation. We are now in hyperinflation technically.”

The new exchange rate creates a risk that more people will be driven into the black market, further starving the economy of already insufficient state revenue at a time when the country is buckling under a shortage of wheat, fuel and electricity.

The prices of food, clothing, furniture and health care all surged by more than 200% in June from a year before and the monthly inflation rate was 39.3%, according to the statistics office.

Still, Zimbabwe’s Treasury expects changes to the nation’s currency system will help rein in inflation later in the year. Finance Minister Mthuli Ncube said in June he sees the gauge below 10% by the end of the year.