Zimbabwe inflation slows, but still world's highest

By MacDonald Dzirutwe Posted 10 October 2006 @ 05:29 pm EET     Print     Reprint     E-Mail     Comments

HARARE (Reuters) - Zimbabwe's annual inflation eased in September but remained the world's highest as the southern African nation grapples with a severe economic crisis critics blame on President Robert Mugabe's government.

Zimbabwe's soaring inflation is seen as a major stumbling block to pulling the country out of an 8-year recession marked by a jobless rate above 70 percent, and persistent shortages of foreign currency, fuel and food.

The Central Statistical Office (CSO) said on Tuesday year-on-year inflation had slowed to 1,023.3 percent in September, down from a record 1,204.06 in August.

"You had September 2005, which had one of the highest increases on a monthly basis, which was not repeated this year. So technically this contributes to the lower figure of annual inflation," said CSO acting director Moffat Nyoni.

On a monthly basis, Zimbabwe's consumer price index rose 14.8 percent in September after a 29.2 percent increase the previous month.

Analysts said price pressures still lurked, pointing to excessive government spending which had seen its domestic debt nearly double to Z$121.4 billion between June and September this year.

Shunned by Western financial donors, Mugabe's government has increasingly relied on the local bank sector for money to plug holes in the national budget, and to import food and farming inputs.

INFLATION PRESSURES REMAIN

"Inflation pressures have not decreased because we still have high money supply growth, wage pressures and high government expenditure," David Mupamhadzi, chief economist at Zimbabwe Allied Banking Group told Reuters.

Tuesday's inflation data came a day after central bank governor Gideon Gono raised the main lending rate by 200 percentage points to 500 percent.

On July 30, Gono slashed the rate by 550 percentage points to 300 percent, citing a need to balance "the virtues of anti-inflation demand management and the continued flow of credit to the productive sectors of the economy."

But Gono warned a month ago that interest rates were likely to be hiked again to tame galloping inflation.

"Money was cheap and people were borrowing to fund non-productive activities such as the stock market and black market foreign currency trade. This is fuelling inflation," Mupamhadzi said.

Urban residents have been the hardest hit by skyrocketing prices and also have to contend with burst sewers, water shortages and intermittent electricity black-outs which have fanned political tensions and fears of political unrest.

On Tuesday state media reported that urban residents faced massive power cuts following the breakdown of all generators at the giant Hwange Thermal Power station, which has failed to operate at full capacity due to a foreign currency squeeze.

The CSO said an average family of five now needed $539 to survive through a month, compared with $401 in August in a country where an average government worker earns $120.

Analysts say Zimbabwe needs to boost industrial and agricultural production, partly knocked by the seizure of white-owned commercial farms for landless blacks, to generate much needed foreign currency and stabilise prices.