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Zimbabwe Inflation Eases Further

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http://news.bbc.co.uk/1/hi/business/8258723.stm

Zimbabwean inflation slowed again last month, thanks to the lower cost of food and non-alcoholic drinks, the Central Statistical Office (CSO) has said.

The month-on-month rate was 0.4% in August, compared with 1% in July.

While it is the latest indication that Zimbabwe is recovering from the hyper-inflation of 2008, the CSO still does not publish an annual rate.

Last year, Zimbabwe's annual inflation rate soared as high as 231,000,000% as its economy collapsed.

This prompted the CSO to abandon releasing the annual rate every month.

Currency move

The national unity government, formed in February, has since started efforts to both help the economy recover and try to get inflation under control.

One of its first decisions was to allow people to use foreign currencies, a move that has now in effect removed the worthless Zimbabwean dollar from circulation.

Analyst Philip Walker of the Economist Intelligence Unit, said the CSO's latest inflation data appeared to be broadly accurate.

"While you have to take the figure with a pinch of salt, it is really the only even vaguely reliable source," he said.

"Zimbabwean inflation is certainly not at the level seen this time last year ago... the fact they have abandoned the Zimbabwean dollar has certainly helped."

Looks like Zimbabwe have fixed there currency crisis by getting rid of the currency.

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evidence that inflation is down to the money supply first and foremost.

well, yes, if you 'do a zimbabwe' and print a couple of hundred times as much money as there used to be when there's been no economic growth [or, more accurately, negative growth] i think we all know what is going to happen... but there are obviously, in the general scheme of things in counties with sensible monetary policy, short to medium term fluctuations in [non-hyper] inflation that have nothing to do with the money supply.

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well, yes, if you 'do a zimbabwe' and print a couple of hundred times as much money as there used to be when there's been no economic growth [or, more accurately, negative growth] i think we all know what is going to happen... but there are obviously, in the general scheme of things in counties with sensible monetary policy, short to medium term fluctuations in [non-hyper] inflation that have nothing to do with the money supply.

Which ones? Show me the coutry that has inflation without an increase in money supply or massive devaluation please, I'm intrigued how this happens.

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Which ones? Show me the coutry that has inflation without an increase in money supply or massive devaluation please, I'm intrigued how this happens.

I do have a modest knowledge of the subject, unfortunately, if you do as well then i can't believe you've never cringed at reading some kidney stone of wisdom or other gushed by a poster on here along the lines of "argh, price of beans up 25% at waitrose, damn you gordon and your QE shenanigans".

All I was attempting to do in that last post was gently steer people away from rushing to draw parallels between mugabee-era zimbabe & the US or UK as we are today. This is emphatically the place for am attempt at an even vaguely serious discussion of macroeconomics.

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I do have a modest knowledge of the subject, unfortunately, if you do as well then i can't believe you've never cringed at reading some kidney stone of wisdom or other gushed by a poster on here along the lines of "argh, price of beans up 25% at waitrose, damn you gordon and your QE shenanigans".

All I was attempting to do in that last post was gently steer people away from rushing to draw parallels between mugabee-era zimbabe & the US or UK as we are today. This is emphatically the place for am attempt at an even vaguely serious discussion of macroeconomics.

I would be interested in hearing your thoughts about why the UK and US as in a different position to that of Zimbabwe or the Weimar Republic in the early stages of their hyperinflationary problems.

I would also like to hear your reasons to support the notion that the US or UK will be able to stop at "only a little bit" of QE and not fall into the unstoppable trap of thinking that printing more and more money is the only solution to the problems that arise from increase of the value of money and debt relative to goods and services (deflation and demand destruction).

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Zimbabwean inflation slowed again last month, thanks to the lower cost of food and non-alcoholic drinks, the Central Statistical Office (CSO) has said.

This statement needs deeper analysis.

Is inflation now measured in terms of Zim dollars, US dollars or some basket of currencies?

The reason I ask is that Zimbabwe has probably had massive deflation of prices in the Mugabe period measured in US dollars or shiny metal.

You can probably buy a house with a pool in Harare for $1000 and employ security for $1 a day.

This is one of the problems with talking about inflation when one does not know whether we are talking about money supply, an arbitary price index or relative to what currency.

The situation in the UK is not so different - just in degree.

We have seen massive 50%+ house price deflation for some foreign currency holders but we have, in fact, seen the Sterling price of baked beans double in the last couple of years.

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I would be interested in hearing your thoughts about why the UK and US as in a different position to that of Zimbabwe or the Weimar Republic in the early stages of their hyperinflationary problems.

I would also like to hear your reasons to support the notion that the US or UK will be able to stop at "only a little bit" of QE and not fall into the unstoppable trap of thinking that printing more and more money is the only solution to the problems that arise from increase of the value of money and debt relative to goods and services (deflation and demand destruction).

ha, i'm not an expert at all, i have a couple of degrees in economics but always steered towards the micro side of things. so, whilst i can't give a coherent answer to your question it's fair to say that, firstly, i would know where to look if i was trying to put one together, and, secondly, i understand how complicated it all is and how misleading simple/blithe statements can be.

comparisons with zimbabwe, though, are daft. our fiscal situation is incomparable, we have far greater press freedom and far freer elections. i'm not sure that anyone even knows how much printing zimbabwe did... nobody was accountable for it.

i genuinely have a degree of faith that the bank of england believes it is taking a calculated risk and no more than that, although, of course, we'll never know the relative importance they attach to controlling inflation and, ahem, not stifling grwoth]. the credibility of all involved would be shot to pieces, making them forever unemployable, if we had a hyperinflation. the zimbabwe printing exercise was little more than [in effect] a ninety-odd percent tax to enable the government to hoover up a bit more of what little wealth remained in the country.

Edited by the flying pig

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................. i'm not sure that anyone even knows how much printing zimbabwe did... nobody was accountable for it.

Sssh, don't give Gordon ideas

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harare_prop_2.bmp

Back to Zimbawe.

The more I think about this the more interesting it becomes.

Despite the uncontrolled money printing in Zimbabwe Osborne Gono failed to prevent deflation.

Here is a house for sale in Harare. 3 bedrooms, 2 bathrooms, garage. With Knight, Frank & Rutley for $80000 admittedly over a year ago. Probably cheaper now and undoubtably open to offers.

How can the West hope to prevent house deflation with much more modest printing.

harare_prop_2.bmp

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Back to Zimbawe.

The more I think about this the more interesting it becomes.

Despite the uncontrolled money printing in Zimbabwe Osborne Gono failed to prevent deflation.

As I repeatedly keep saying deflation is perfectly normal, the economic cycle is like breathing you can't breathe in forever at some point you need to breathe out.

You can't beat the cycle, what you need is the intelligence to go with the cycle and work with it, deflation is the economies natural reaction to too much expansion. However this signifies ultimately failed political policies which means politicians will never admit too it.

This is why money printing won't stop it.

Deflation is just as natural as inflation, trouble is if you've allowed too much debt to be built up the natural cycle bankrupts everyone.

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This statement needs deeper analysis.

Is inflation now measured in terms of Zim dollars, US dollars or some basket of currencies?

The reason I ask is that Zimbabwe has probably had massive deflation of prices in the Mugabe period measured in US dollars or shiny metal.

You can probably buy a house with a pool in Harare for $1000 and employ security for $1 a day.

This is one of the problems with talking about inflation when one does not know whether we are talking about money supply, an arbitary price index or relative to what currency.

The situation in the UK is not so different - just in degree.

We have seen massive 50%+ house price deflation for some foreign currency holders but we have, in fact, seen the Sterling price of baked beans double in the last couple of years.

sure, a house, even in London, is only worth what people can pay for it. Finance allows prices to rise.

Clearly, Harare is not flooded with people earning hundreds of dollars a week, but it clearly has people for whom $7 is a living wage.

Take a look at Brazil where the law says you cant finance a house purchase....prices are what people can save and afford.

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ha, i'm not an expert at all, i have a couple of degrees in economics but always steered towards the micro side of things. so, whilst i can't give a coherent answer to your question it's fair to say that, firstly, i would know where to look if i was trying to put one together, and, secondly, i understand how complicated it all is and how misleading simple/blithe statements can be.

comparisons with zimbabwe, though, are daft. our fiscal situation is incomparable, we have far greater press freedom and far freer elections. i'm not sure that anyone even knows how much printing zimbabwe did... nobody was accountable for it.

i genuinely have a degree of faith that the bank of england believes it is taking a calculated risk and no more than that, although, of course, we'll never know the relative importance they attach to controlling inflation and, ahem, not stifling grwoth]. the credibility of all involved would be shot to pieces, making them forever unemployable, if we had a hyperinflation. the zimbabwe printing exercise was little more than [in effect] a ninety-odd percent tax to enable the government to hoover up a bit more of what little wealth remained in the country.

It is possible that the motives in the UK and Zimbabwe are different but the actions are similar (with a big time lag) so far.

In terms of monetary policy, we are probably where Zimbabwe were in the early to mid 1980s.

I too hope that the BoE regards QE as a temporary measure and, more importantly, are able to "put the genie back in the bottle" at the right time. The right time will be tricky to recognise and the conflict between monetary and fiscal policies could make execution difficult.

I do not think that the UK in 2009 is the same as Zimbabwe in 2005. I do think that it is similar to Zimbabwe in 1985 and worry that the UK's path from 2008 to 2028 will converge with Zimbabwe's path from 1985 to 2005

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It is possible that the motives in the UK and Zimbabwe are different but the actions are similar (with a big time lag) so far.

In terms of monetary policy, we are probably where Zimbabwe were in the early to mid 1980s.

I too hope that the BoE regards QE as a temporary measure and, more importantly, are able to "put the genie back in the bottle" at the right time. The right time will be tricky to recognise and the conflict between monetary and fiscal policies could make execution difficult.

I do not think that the UK in 2009 is the same as Zimbabwe in 2005. I do think that it is similar to Zimbabwe in 1985 and worry that the UK's path from 2008 to 2028 will converge with Zimbabwe's path from 1985 to 2005

course, putting the genie back in the bottle will be deflationery in the terms of the markets at that time.... so withdrawing 175bn from the supply is going to cause a shortage again....wonder what they will do to counter it again, or will they face the pain?

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That's a law which should be implemented everywhere.

yes, I saw this on a documentary about Brazilian economy some time ago, where they relaxed lending on office space and prices just about immediately tripled.

and coincentally, on Bloomberg, some suit was promoting a fund investing in Brazilian real estate, the one objection that came up was where he thought the profits would come from as you cant finance a house there with loans.

he confirmed that 99% of deals needed 100% cash, but some could be got through with 90%, but he skipped any explanation...probably some scam he's thought up.

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harare_prop_2.bmp

...Despite the uncontrolled money printing in Zimbabwe Osborne Gono failed to prevent deflation.

Here is a house for sale in Harare. 3 bedrooms, 2 bathrooms, garage. With Knight, Frank & Rutley for $80000 admittedly over a year ago. Probably cheaper now and undoubtably open to offers.

How can the West hope to prevent house deflation with much more modest printing.

(1) rampant AIDS and massive out-migration [by both whiteblack, rich/poor] means that Zimbabwe's population is declining. i expect there are many empty houses, of the rural shack variety, out there;

(2) they've had a teensy-tiny 'recession' in the last few years - not going to look it up but i suspect their $GDP is a not especially large fraction of what it was;

(3) on house prices specifically, i think it's fair to say that property rights in Zim are not what they were... 20 years ago, if you'd got home to find squatters/intruders, in your home, the police would have happily, and none too gently, moved them on for you, over time this happy state of affairs has gradually declined from being achievable only with a bribe, through being probably unachievable, through being possibly achievable with a bribe but at the risk that the police will install someone else in the place of the initial interlopers, to being more or less unthinkable. why would you spend a lot of money on a house if you had no confidence in your ability to hang on to it?

let's not compare the UK with somewhere that, sadly, has lurched close to being the worst place in the world.

Edited by the flying pig

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snip

let's not compare the UK with somewhere that, sadly, has lurched close to being the worst place in the world.

I thought that Zimbabwe used to be one of the wealthiest, best fed and lawful countries in Africa.

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I thought that Zimbabwe used to be one of the wealthiest, best fed and lawful countries in Africa.

thats libya (wealthiest and best fed), and has been for the past 4 decades...

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It was until they let an idiot take charge.

Like I said, not so different to the UK then. Just a matter of degree and distance along the path

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Like I said, not so different to the UK then. Just a matter of degree and distance along the path

"a matter of degree" could mean literally anything. the difference between the rain we had yesterday in london and noah's flood was only one of degree [duration and severity] but their consequences could not be less alike.

what happened in zimbabwe was the result of a unique combination of circumstances, all revolving around a government that was incompetent, unelected [unless you count votes cast at the barrel of a gun], and corrupt to such an extent that it's insulting to the population in both countries, and taking in an unthinkably [by our standards] war & public spending programme, drought, withdrawal of foreign aid, disastrous land reform, and so on. printing lots and lots of money was a response to the ruin that the government had inflicted on itself rather than a cause as such.

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what happened in zimbabwe was the result of a unique combination of circumstances, all revolving around a government that was incompetent, unelected [unless you count votes cast at the barrel of a gun], and corrupt to such an extent that it's insulting to the population in both countries, and taking in an unthinkably [by our standards] war & public spending programme, drought, withdrawal of foreign aid, disastrous land reform, and so on. printing lots and lots of money was a response to the ruin that the government had inflicted on itself rather than a cause as such.

Or alternately ......

What is happening in the UK is the result of a unique combination of circumstances, all revolving around a government that is incompetent, an unelected Prime Minister and at least two levels of government that are corrupt to such an extent that it's insulting to the population.

Taking on an unthinkable war, public spending programmes financed with debt, drought, flooding, provision of unaffordable foreign aid, disastrous land speculation, an unreformed and distorting planning permission process and so on are just some of the problems either caused by or worsened by the current government.

Printing lots and lots of money is a response to the ruin that the government had inflicted on itself rather than a cause as such.

Edited by LuckyOne

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