Zimbabwean Inflation Surges to 11.2 Million Percent

By Nasreen Seria

Aug. 19 (Bloomberg) -- Zimbabwe's inflation rate surged to a record 11.2 million percent in June, the highest in the world, after almost a decade of recession worsened food and fuel shortages.

Inflation accelerated from 2.2 million percent in the previous month, Moffat Nyoni, acting director of the Central Statistics Office, said by telephone from the capital Harare today.

The economy faces collapse with consumers resorting to barter as inflation and a slump in the Zimbabwe dollar erodes the value of cash. The southern African nation has had shortages of basic commodities since 2001, a year after President Robert Mugabe began seizing white-owned commercial farms. The central bank cut 10 zeroes off its currency last month, revaluing the 100 billion note to 10 Zimbabwe dollars.

``The economy is in complete meltdown,'' Victor Munyama, an economist at Standard Bank Group Ltd., Africa's biggest lender, said by phone from Johannesburg today. ``There is a shortage of foreign exchange and they don't have the resources to import raw materials to sustain production. That's the bottom line.''

Latin America

Hyperinflation in Zimbabwe surpasses that of Latin American countries, such as Argentina, Bolivia and Brazil in the late 1980s and early 1990s. Inflation in Bolivia peaked at 23,447 percent in August 1985, according to the International Monetary Fund.

Zimbabwe's central bank Governor Gideon Gono proposed a six- month freeze on prices and wages because the economy is in a ``state of socio-economic emergency,'' the state-controlled Herald reported on Aug. 1.

Cash-strapped consumers are resorting to bartering fuel coupons for goods, such as household appliances and furniture. Some retailers prefer payment in coupons instead of local currency because of the rapid devaluation of the Zimbabwe dollar. The currency trades at about 1,400 per U.S. dollar on the black market, where most residents buy foreign exchange. On July 25, the rate was about 10 per U.S. dollar.

A governmental crisis is further undermining the economic outlook. Zimbabwe has been in political limbo since Mugabe claimed victory in a one-man runoff presidential election that opposition leader Morgan Tsvangirai boycotted in protest of violence targeting his supporters.

Hyperinflation will continue to be a problem ``as long as the political crisis isn't resolved,'' Munyama said. ``That is the stumbling block. If they resolve the political crisis, there's no doubt they'll get the balance of payments funding they need'' from agencies such as the IMF.

Four weeks of talks between Tsvangirai, who won the most votes in the initial poll on March 29, and Mugabe, 84, have deadlocked because of disagreement on the division of powers in a new government. While the two parties have agreed that Mugabe remains as president and Tsvangirai, 56, becomes prime minister, the opposition wants the prime minister to chair the Cabinet and have responsibility over the government, Tsvangirai said on Aug. 17.

To contact the reporters on this story: Nasreen Seria in Johannesburg at nseria@bloomberg.net