HARARE – Zimbabwe’s year on year inflation rate could reach 450 percent by the end of this year in line with this week’s new measures announced to contain a worsening crisis, according to a new report by advisory firm, Econometer Global Capital.
The Ministry of Finance and Economic Development on Monday announced a shock decision to abandon a multicurrency system that had been in force since 2009, precipitating a wave of uncertainty in the southern African country.
Prices of basic commodities shot up overnight, while the dominant foreign currency black market saw its rates driving further north.
Econometer said in a research note on Tuesday that government’s “rushed” decision was a recipe for disaster.
It immediately reviewed its year-end inflation target to 450 percent, from a previous projection of 280 percent.
“Already government has announced a salary increment for the civil service with effect from July. Resultantly annual inflation which stood 75.86 percent in May will spike due to this money supply growth. In our view our initial projection that inflation could close the year at 280 percent will thus be reviewed,” said the report.
“This figure will be surpassed before year and at this rate the figure could be around 450 percent. In the final analysis of it all, the rushed announcement of reintroducing the Zimbabwe dollar brings back yesteryear memories such as price controls, runaway inflation and general shortages of goods. The shortages of goods will result from limited access to foreign currency to restock. Business which will only have access to foreign currency through either their banks or central bank will end up making beelines to the central bank queuing for the elusive commodity. The policy measures will also result in wrangles between government and exporters such as tobacco farmers and gold producers who currently have varying foreign currency retention thresholds,” noted Econometer.
Government has projected that year on year inflation will fall to between 10 and 15 percent by the end of this year.