Thread by @baba_nyenyedzi

1/ Inflation thread.
The implied inflation rate in December 2019 is 521%. Yet GOZ, in its policy thrust ignores the scourge. Preferring “productivity &growth”. Yet most of industry in 2019 could not keep up with inflation rate. So where would productivity &growth come from?

2/ The RBZ MPC decided to reduce interest rates to 35%pa yet inflation is 521%. Quite contrary to wisdom or economic theory.

From government thrust we can deduce that inflation is not a concern. Policy ignores inflation. Yet hyperinflation is like malignant cancer.

3/ Perhaps GOZ like most Zimbabweans don’t understand inflation and what it means. So let’s define inflation and it’s many varied ways of calculation. The singular honour of being hit by hyperinflation twice should humble us all. As national failure.

4/ Inflation is how much a country’s money has lost value ( debasement) over a given period. It’s the relationship between money and what it can buy/purchase. Eg 160 hrs of labour of work by a civil servant in 2016 could pay rent, buy groceries, school fees, transport ....

5/ ....The same 160 hours of labour by a civil servant in December can barely pay for two weeks of groceries only.

So what has changed? It’s the same hours of labour. The same needs. Yet the civil servant is unable to enjoy the quality of life they enjoyed in 2016.

6/ CPI which is used is NOT inflation but a proxy for inflation. It looks and estimates inflation purely in consumer, mostly perishable goods& services and not price of bricks, cars, Maize seed, fertilizer etc.

It is a good proxy in low inflation environments only.

7/ Producer Price Index (PPI) looks at costs borne by business/farmers and other producers in a country. This is no longer being produced but it would give us an idea of price increases in raw materials. Moreso in an informal market like Zim. Again this is a proxy.

8/ All these proxies become redundant and less useful in high inflation. The best way to truly capture the inflation rate is Purchasing Power Parity, PPP. It measures how much a country’s money has lost. In our eg how much a civil servant’s labour hours have lost buying power

9/ Clearly peoples lived experience of increase in prices is way more than 521%. And as Jan starts & prices are increasing with no sight of abating. But more importantly production cannot grow more than inflation. Meaning our purchasing power declining rapidly.

10/ People are economic agents. They will act to preserve what little they have. They will not risk it in production. Production is a speculation about the future. Was the dollar spent in plant & machinery worth it? When what it produces cannot keep up with inflation?

11/ So when GOZ speaks of productivity & growth they seem out of touch. Why would labour offer it’s service when it returns far less than before? and business cannot keep up with inflation. They’ve lost money. Inflation, one would think, would be GOZ economic priority.

12/ Inflation cannot be wished away. People lost real money and savings. Their Behaviours will stroke more inflation as jostling for preservation ensues. Production is replaced by trading. Time horizons are shortened. GOZ perhaps, is out of its depth.

End