A race against inflation
All of us in Zimbabwe find ourselves in an amazing dilemma. Today, I rushed to the bank and drew the maximum allowable, $1.5m (about 19 UK pounds) as this is the maximum amount of cash that an individual can lawfully withdraw each day as dictated by the government.
I was paid my salary 4 days ago which means that I have already lost 12% of my income by the time I even began to spend it. That is 3% per day which is inflation in Zimbabwe right now, if this is annualized it will mean that anything we buy will increase over 4000 times the price in 12 months.
So we draw our money and rush to buy basic goods for the household in the hope we will catch bargains to avoid the price increases. If one is lucky enough, it means rushing back to the bank again to draw more cash the next day despite that, this journey may cost the owner of a vehicle $100 000 or so each time.
When I go through this process I think of the innocent and less streetwise who may hold on to their money for a week before spending it and this simply means that 12% of the value of your hard earned money is lost by then. Then consider another anomaly. The public sector cannot cope with the rapidly changing economics so it means the poorest worker is now paying income tax at a level which used to be a relatively high income bracket.
All round, it is the people that suffer and lose and the system gobbles up their valuable money.
Then I, like every one else, has to decide what to do with my remaining cash which I will require for incidentals. If I hold on to it, I lose, so therefore we go out into the market place and decide whether to buy goods that we can re-sell or we risk arrest by quite clearly breaking the law and buying currency on the black market. If we get caught we face punishment and very definitely will not recover the foreign currency from the state.
This is sadly the position today, but next week and then every day and every hour thereafter it will get worse and the state simply prints money to survive whilst we sweat and toil and struggle only to lose again.
It is obvious to me that this situation will consume itself and everything will come to an end.
May 18th, 2007 10:49
You wrote: “I was paid my salary 4 days ago which means that I have already lost 12% of my income by the time I even began to spend it. That is 3% per day which is inflation in Zimbabwe right now, if this is annualized it will mean that anything we buy will increase over 4000 times the price in 12 months.”
No, it is much, much worse than 4000 times.
You were paid 4 days ago. You have lost 12% already. So your dollar has shrunk to $0.88, right? Every four days what was a dollar shrinks to $0.88. So if you have a million today, it become 880,000 in four days, which become 880,000×0.88 = 774,400 four days later, which become 774,400×0.88 = 527,732 four days later again and so on. At the end of the year, 91,25 periods of 4 days have passed, and your million is reduced to:
$1,000,000 x (0.88^91.25) = $8.59
In other words, what bought a million dollars’ worth today will only buy $8.59 a year from now. Which means prices increased not 4000 times, but 116,400 times.