Zimbabwe Faces Hyperinflation Threat Again

The Zimbabwe National Statistics Agency (Zimstat) announced Monday that the annualized inflation rate increased from 97.8 percent in May to 175.66 percent in June, which means that the country could be going through a hyperinflation process.

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In the last 10 months, both consumption and production prices have been increasing day after day, a situation which frightens a population that still remembers the serious price crisis that this African country went through in the first decade of this century.

"It's not over," said economist John Robertson regarding the uncontrolled price growth without signs of stabilization, which is how hyperinflation is technically defined.

The Johns Hopkins University economics professor Steve Hanke also warned that official statistics are too conservative and that the current inflation would really be at 546 percent.

Since October 2018, prices have been growing steadily and have shattered the predictions of Finance Minister Mthuli Ncube, who said the situation would begin to calm down this month.

The former chief economist at the African Development Bank (ADB) was appointed by Zimbabwe's President Emmerson Mnangagwa 10 months ago.

Since taking office, Ncube began implementing a fiscal austerity program based on the model of the International Monetary Fund (IMF). Harare promised the IMF to cut reliance on the central bank to finance budget deficits. ​​​This decision, however, has worsened the prospects of the Zimbabwean economy.

Among the economic policies adopted was also the decision to end the use of the U.S. dollar as the currency for daily transactions, a measure which did not please a large part of the population that receives U.S. denominated remittances and uses them to circumvent the effects of inflation.

In an attempt to control prices, Zimbabwe had been using a monetary system based on the U.S. Dollar and the South African rand since 2009. When U.S. dollars began to be scarce in 2016, however, this multi-currencies system went into a crisis which led to an interim currency, the Real Time Gross Settlement (RTGS), in February 2019.

Now, the government wants citizens to go to banks to exchange their U.S. dollars for "Zimbabwean dollars". So far, however, the population distrusts RTGS because it fears that its use will not prevent a price escalation similar to what happened in 2008, a year in which inflation reached 500,000 million percent.

In an African country where the majority of the population has informal jobs, price increases and economic contraction are warnings of a new critical situation.

"We are simply surviving," Lazarus Makoni, a Harare inhabitant, said and added that "families are not sending their children to school because they cannot afford to buy pencils or books."

Hyperinflation is also encouraging discontent among public employees, who want their salaries to be converted at a rate equivalent to 10 Zimbabwean dollars for each U.S. dollar, a measure which would allow them to improve their real salary and alleviate the loss of purchasing power of the local currency.

According to Robertson, the only hope for Zimbabwe is the stabilization of its local currency, which has depreciated 120 percent against the U.S. dollar since February.

"That is what should be monitored. If the exchange rate continues to weaken, prices will continue to rise," he explained.