Gono cooked the figures to hide true extent of inflation

Central bank governor cooked up figures to hide the true extent of inflation.

An internal Reserve Bank of Zimbabwe study pegged inflation in mid-February 2006 at 2114 percent.

The Central Statistics Office told the nation on 13 February that inflation was 613 percent having risen from 585 percent in December 2005.

United States ambassador to Zimbabwe Christopher Dell said Gono admitted to cooking the figures after he challenged him that inflation exceeded 1 000 percent.

Full cable:

Viewing cable 06HARARE183, INFLATION SOARING EVER HIGHER

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This record is a partial extract of the original cable. The full text of the original cable is not available.

S E C R E T SECTION 01 OF 02 HARARE 000183

SIPDIS

SIPDIS

AF/S FOR BNEULING

NSC FOR SENIOR AFRICA DIRECTOR C. COURVILLE

USDOC FOR BECKY ERKUL

TREASURY FOR J. RALYEA, B. CUSHMAN

PASS USTR FOR FLORIZELLE LISER

STATE PASS USAID FOR MARJORIE COPSON, ERIC LOKEN

USDOL FOR ROBERT YOUNG

US MISSION GENEVA FOR JOHN CHAMBERLAIN

E.O. 12958: DECL: 12/31/2009

TAGS: ECON ETRD PREL PGOV ZI

SUBJECT: INFLATION SOARING EVER HIGHER

REF: A. HARARE 178

¶B. TD-314/10975-06

¶C. HARARE 098

¶D. HARARE 046

Classified By: Ambassador Christopher W. Dell for reason 1.4 b/d

¶1. (SBU) The GOZ’s Central Statistical Office (CSO) reported

February 13 that the annualized rate of inflation reached 613

percent in January, up from 585 percent in December (ref D).

Food and non-alcoholic beverages, which make up nearly one

third of the consumer price index basket, posted an annual

increase of 785 percent. The cost of housing rose by 56

percent in the month, driven largely by a huge one-month jump

of 239 percent in rates. Passenger transport costs (about 4

percent of the CPI basket) increased 1507 percent for the

12-month period. The CSO reported that the total consumption

poverty datum line for a family of five increased to over

Z$20 million/month (US$201 at the interbank exchange rate of

Z$99,200:US$1 and US$125 at the parallel market rate of

z$160,000:US$1). At the same time, a family of five required

Z$7.8 million/month just for food.

¶2. (C) The more respected PricewaterhouseCoopers Cost of

Living Analyses put the January annualized cost of living

increase at 993 percent for low-income earners, 819 percent

for the high-income category, and 710 percent for

middle-income earners. Driving low-income inflation was rent

(up 2400 percent for the year for a 2-room accommodation),

consumables (up 1919 percent) and “other food” (up 1030

percent and dominated by sharp increases in the price of

sugar, margarine, salt, flour, and mealie meal- Zimbabwe’s

staple food). (N.B. mealie meal has practically disappeared

from shop shelves around the country in the last few weeks.)

The steepest annualized increases for high-income earners

were in use of a second vehicle (up 1921 percent), holiday

spending (up 1614 percent), and consumables (up 1573

percent). Middle-income earners experienced sharpest

increases in transportation (up 3638 percent), consumables

(up 1772 percent), and medical expenses (up 1406 percent).

¶3. (S/NF) Zimbabweans accept that the inflation rate is

actually much higher than officially reported and Reserve

Bank Governor Gideon Gono did not dispute Ambassador’s

contention during an encounter last week (ref A) that it

exceeded 1000 percent and admitted that he was cooking the

numbers to hide the true extent of inflation. Indeed,

sensitive reporting indicates that a recent internal Reserve

Bank study pegged the inflation rate in mid-February at 2114

percent and predicted it would continue to increase due to

the Bank’s inflationary policies (Ref B).

——-

Comment

——-

¶4. (SBU) 1000 percent? 2000 percent? What really matters is

that no end to inflation’s trajectory is in sight. Moreover,

with wages stumbling behind these extraordinary inflation

figures, mid-level civil servants, soldiers and police

officers, even MPs, who had once been comfortably in the

middle class, now live below the poverty line. Looking

ahead, the effective freezing of the official foreign

exchange rate in January (ref C) will force importers to

source forex on the parallel market, thus driving prices up

further. Significant Treasury Bill maturities coming due in

the next months will also increase money supply growth and

fuel inflation. We anticipate that shortage-induced price

increases will be a principal driver of inflation burdening

those suffering at the bottom of the socioeconomic ladder.

Street-level resistance to higher prices, as real disposable

incomes shrink and consumers recover from heavy January

outlays for school fees, rent and rates, will be insufficient

to counter these pressures significantly.

DELL

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