Harare, Zimbabwe – The spectre of hyperinflation is looming over Zimbabwe again, a decade after runaway prices forced the country to abandon its currency.
Annualized inflation in Zimbabwe surged to 175.66 percent in June, up from 97.85 percent in May, the country’s statistical office said Monday.
On a monthly basis, consumer prices rose 39.9 percent in June compared with 12.54 percent in May. Hyperinflation occurs when prices rise 50 percent per month.
“This is surprising. No one was expecting it was gonna be this bad,” economist John Robertson of Robertson Economics, told Al Jazeera.
Monday’s price report was a grim reminder of 2008, when inflation in the economically troubled southern African nation peaked at 500 billion percent, prompting Zimbabwe to ditch its currency in 2009 and “dollarize” by allowing the United States dollar and other foreign currencies to be used as legal tender.
This year, Zimbabwe started laying the groundwork for a new sovereign currency with the introduction of the Real Time Gross Settlement (RTGS) dollar or “Zimdollar”, which has become a target of black market speculators. In a bid to defend the Zimdollar against such speculation, the country’s finance minister in June outlawed using foreign currencies in local transactions.
But the Zimdollar continues to lose ground against foreign currencies. As Robertson points out, this creates serious problems for Zimbabwe because the country relies heavily on imports of goods and raw materials that are paid for in foreign exchange.
Inflation may be worse than official statistics suggest
Monday’s price data was also troubling because Zimstat, Zimbabwe’s national statistics agency, said that it had not changed its formula in March for measuring inflation, the June reading based on the old formula would technically have landed the country in hyperinflation territory.
Beyond formulas, prices of goods are rising so fast that the official data may not be capturing just how troubled the situation is becoming.
“The June figure of 175.66 percent could still be lower than the actual price hikes experienced in the market where prices for most fast-moving consumer goods doubled more than twice,” said Harare-based independent economist Victor Bhoroma.
Bhoroma told Al Jazeera that he predicts inflation will be above 200 percent by the end of the year, fed by several factors: price hikes for essentials such as fuel and electricity, salary increases for civil servants, the issuing of more government debt, and the minting of new Zimbabwean notes and coins.
While Robertson sees inflation rising fast in July and August, he believes it will start to stabilise this fall.
“I think prices are not going to be rising as fast after September,” he told Al Jazeera.” The exchange rate should remain at current levels for the next couple of months. But there is still a risk [that] demand for forex [foreign exchange] may increase against limited supplies. If that happens, then the exchange rate may actually weaken against the US dollar.”