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Tuesday, June 26, 2007

Brilliant! Fighting Inflation in Zimbabwe

The question of how to control runaway inflation has to be haunting Robert Mugabe’s dreams. The official rate of inflation--which is far lower than the real rate--is set at 3,700%. Which is, you know, pretty bad. Especially considering the last few years of quadruple digit inflation in the country--the Zimbabwean dollar is nearly worthless in its own country and only has value as a novelty outside those borders.

What’s a tyrant to do?

The easy answer, of course, is to order stores to slash prices on all consumer goods so that regardless of the real purchasing power of the Zim dollar, consumers will be able to afford the basics. Isn’t that a simple solution?

Of course, that ignores the costs that the sellers have to pay to stock their shelves--and their prices, especially on any goods that come from outside the country, aren’t going down. Their prices are going up. The government dictate is essentially an order to sell goods at below their real costs--which, even a ten year old running a lemonade knows isn’t good business practice.

The results are predictable.

On Tuesday, shops in central Harare seemed to be defying the new directive. Instead of cutting prices, some supermarkets simply emptied their shelves of goods such as sugar, salt, flour cooking oil, beef and fuel that would be subject to the order.

“We have been instructed by management to remove some of the products from the shelves for now,” an assistant at a leading chain store said as shoppers scrambled to buy bathing soap.

At another store there were long queues as people stocked up, saying they feared basic goods would now be in even shorter supply. But for several companies it was business as usual.

“We have not reduced our prices because that has not been communicated to us by the owners ... In actual fact, some of the prices will go up tomorrow,” said Sam Makaza, a manager at a supermarket in downtown Harare.

It will also likely have the perverse effect of pushing even more people into the underground economy where barter and the trade of real currencies bypass the idiotic plans of a regime that very obviously has no legitimate plan for rescuing the economy. Which is lucky: the more people that step out of Zimbabwe’s official, fantasy economy and into the underground, reality-based (and, yes, the term has real meaning here) economy, the more the country is propped up. In fact, some people credit that black market economy with being the only thing that is holding off complete economic collapse in the nation.

How far can that collapse really be, though? I’ve been amazed at the resilience and patience of the people combined with a relatively low level of violence, but the situation cannot be expected to last forever.

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