ECO Hafer Spring 2019

With prices doubling every few days, Zimbabweans now spend huge amounts of time and energy preventing their meagre cash resources from completely evaporating. Trying to catch up with galloping hyperinflation, now officially running at 2.2m per cent a year and at least four times faster in reality, the central bank has been printing ever bigger denominations. But it is outrun by galloping prices. Zimbabweans spend their local dollars as fast as possible or change them into hard currency on the black market. With a strict daily limit (currently less than $1.40) on bank withdrawals, people shun banks as much as possible and are returning to a cash economy. Petrol and rents are now charged mainly in American dollars or South African rand, but since some landlords have been taken to court, rents are increasingly often paid for in groceries. John Robertson, a local economist, reckons that the informal economy has probably become larger than the formal one. Zimbabwe holds the dubious distinction of being the only country in the world today that is suffering from hyperinflation: that is, prices are increasing by more than 50% a month.

Abstract
In 1956 Phillip Cagan, an economist working at America’s National Bureau of Economic Research, published a seminal study of hyperinflation, which he defined as a period in which prices rise by more than 50% a month. [...]what accelerates this process, turning a jump in prices into hyperinflation, is the impact of inflation on government revenue. Because taxes on income or sales are typically paid after they accrue, a period of high inflation leads to a fall in their real value. The ascent of inflation quickly becomes explosive, especially in countries where wages and price rises are indexed.

Abstract
The government stopped releasing official statistics on consumer prices in 2016, but anecdotal news reports and the black-market exchange rate for the country’s currency lend credence to the opposition’s claims. [...]Nicolás Maduro, the country’s autocratic president, has proven himself willing to squelch street protests by force, and has already remained in office far longer than many observers thought possible. [...]the one price Mr Maduro wants to see go up—that of crude oil—has moved in his favour of late. [...]the largest denomination is already 100,000 bolívares.