Zimbabwe’s Inflation Monitor: A Weekly Update

Authored by Steve H. Hanke of the Johns Hopkins University. Follow him on Twitter @Steve_Hanke.

In 2008, Zimbabwe suffered the second most severe episode of hyperinflation in recorded history. The annual inflation rate peaked in November 2008, reaching 89.7 sextillion (10^23) percent (see table below).

 At the peak of Zimbabwe’s hyperinflation episode in November 2008, Zimbabweans refused to use the Zimbabwe dollar. With that, the economy was spontaneously, and unofficially, dollarized. Eventually, the government faced this fait accompli in early 2009, when they dollarized the economy by accepting the dollar as the unit of account for government finances.

Today, Zimbabwe is once again experiencing hyperinflation, not due to dollarization, but because the Zimbabwean government is issuing, in effect, a new currency that is circulating parallel to the U.S. dollar. Currently (11/1/17), the annual inflation rate is at 333% (see chart below).

 During Zimbabwe’s hyperinflation episode from 2007-2008, the Reserve Bank of Zimbabwe failed to report an accurate measure of inflation rates. When episodes of hyperinflation occur, the only feasible and reliable way to measure the inflation rate is via the application of Purchasing Power Parity (PPP). To do so, data on the exchange rate between the domestic currency and a stable international currency are required. This was not feasible in Zimbabwe. The Zimbabwe dollar was not traded on an organized exchange that reported exchange rates, and the use of black-market exchange rates was not feasible either.

However, the organized stock market in Harare did provide prices that allowed for the calculation of implied Zimbabwe dollar exchange rates. One stock, Old Mutual, was, and still is, listed on both the London Stock Exchange and the Zimbabwe Stock Exchange. Each share of Old Mutual commands the same claim on the company’s earnings and assets, irrespective of the market it is traded on. Therefore, given arbitrage and PPP, the ratio of the Old Mutual share price in Harare to that in London equaled the Zimbabwe dollar/sterling exchange rate.

To convert the resulting Zimbabwe dollar/sterling exchange rate to a Zimbabwe dollar/U.S. dollar rate, I multiplied the Zimbabwe dollar/sterling rate by the sterling/U.S. dollar rate, creating what is known as the Old Mutual Implied Rate (OMIR). By using the OMIR as an exchange rate between Zimbabwe dollars and USD, PPP was then applied as the final link necessary for calculating inflation rates.

When President Robert Mugabe’s party, ZANU-PF, regained control in Zimbabwe in 2013, government spending and public debt surged, resulting in economic instability. To finance its deficits, the government created a “New Zim dollar.” The New Zim dollar is issued at par to the U.S. dollar, but trades at a significant discount to the U.S. dollar. As a result of the issuance of the New Zim dollar, the money supply has exploded in Zimbabwe, and so has inflation.

Employing the same theory and method of measurement that was used to calculate Zimbabwe’s 2007-2008 hyperinflation episode, I was once again able to measure an accurate inflation rate, explained here in a detailed study. After doing so, I found that Zimbabwe is experiencing hyperinflation for the second time in less than ten years. 

Hyperinflation occurs when the monthly inflation rate reaches 50% per month and remains above that rate for at least 30 consecutive days. This initial threshold was breached on September 14, 2017, and the monthly inflation rate has remained above this rate since. Thus, Zimbabwe is in the throes of an ignominious hyperinflation, in which the monthly rate of inflation is 50% (see chart below).


Cloud9.5 GunnyG Fri, 11/03/2017 - 14:56 Permalink

We are dong the same thing.  One of the big differences is that we have a tremendous amount of normalcy bias that is being propped up by a massive amount of inertia.  Haven’t you ever watched old money go broke?  They can extend and pretend for a very long time.  The full faith and credit b.s. has everybody in line. 

In reply to by GunnyG

allgoodmen Fri, 11/03/2017 - 15:07 Permalink

Endless farmland, endless resources. Yet all those fools do is print funny money. They probably work twice as hard printing and dealing with funny money they would an honest job, but their culture won't let them do actual work.

seataka allgoodmen Fri, 11/03/2017 - 16:28 Permalink

 Why work when Mangoes grow on trees? Why "work" when eveyrthing is automated? 90% of "work" in the West is invented work that produces nothing of value, the owners are hiding the paradym shifting fact that the Jetson's world arrived long ago, everything is automated now, there is no need for most humans to do anything, - even if they could.

In reply to by allgoodmen

Is-Be Fri, 11/03/2017 - 16:20 Permalink

A long time ago I was the boss of a gang of field samplers (geology)One of the men told me that white people were cruel. I asked him why he thought that. He said that if I wanted money I went to the bank, scribbled on a piece of paper and got as much money as I wanted. He had seen it with his own eyes.And yet we only gave them (the aBantu) a small amount. I pitied his ignorance.Watching the machinations of the FED I am not so sure any more.

Windemup Windemup Fri, 11/03/2017 - 16:53 Permalink

Found this... Was it Hungary?Wow, what was the first? France - 1790s During the revolution the government sold large numbers of assignat bonds to pay its debts, but excessive borrowing and food shortages drove up prices. In 196 inflation reached 1,153pc UK - 1921 to 1933 The end of war finance and return to the gold standard in 1925 put downward pressure on prices. Prices fell in almost every year in this period, and by 1933 they had fallen 38pc Germany - 1923 In December 1923 wholsesale prices were more than 85,000,000,000pc higher than a year earlier. The highest denomination bank notes had a face value of more than 1 trillion marks. By October, more than 99pc of bank notes had been in circulation for less than 30 days Russia - 1923 In the years after the Russian revolution, the country experienced social and economic turmoil. Some economic historians believe that the government created inflation to impoverish the better off. In 1923 inflation reached 60,804,000pc Greece - 1944 By October 1944, 99pc of government spending was financed by printing new bank notes, rather than from taxes. Inflation peaked at 130,000pc in this month Hungary - 1946 Hungary experienced the highest inflation ever recorded. In the peak month of July 1946, prices were doubling in little more than 12 hours. The largest denomination bank note in circulation was worth 100,000,000,000,000,000,000 pengo China - 1945 to 1949 Civil war began in 1945 and military spending was high, accounting for up to 80pc of the Nationalist government's budget. Prices, measured in Chinese Nationalist Currency, rose by 2,372pc in the year to March 1948 Argentina - 1980s During the 1980s inflation averaged 750pc a year, reaching a peak of 4,924pc in December 1989. The main cause was a persistent government budget deficit. This was financed by the country's central bank, which led to high inflation Federal Republic of Yugoslavia - 1993 to 1994 The inflation rate peaked at 331,000,000pc in January 1994. The largest bank note in circulation had a face value of 500bn dinars Japan - 1998 to 2005 The 1990s were known as the "Lost Decade", and the country' difficulties were linked to the large amount of debt in the economy. Prices began to fall in 1998, a process that continued for several years. By 2005, consumer prices had fallen by more than 4pc from their peak in 2005 Zimbabwe - 2006 to 2008 Inflation reached 66,212pc in December 2007, the highest in the world at that time. The highest denomination bank note had a face value of 10 trillion Zimbabwe dollars

In reply to by Windemup

Moe Howard silverer Sat, 11/04/2017 - 06:40 Permalink

Here is an article about CSA currency inflation. Go to this link to see the charts. https://inflationdata.com/articles/confederate-inflation/ Here's the text:Confederate Inflation Rates (1861 – 1865)Confederate Inflation During the Civil WarThe civil war exhibited one of the classic hyperinflations of history with confederate notes becoming worthless by the end of the war. But interestingly inflation was not a straight line to infinity. Confederate notes provided an excellent lesson in how money supply affects currency value.The Chart below shows the Annualized Confederate Inflation Rate. The Annual Inflation Rates are calculated from information provided by the Richmond Civil War Centennial Committee on the purchasing power of Confederate Notes.The table below shows the actual Confederate Treasury Note Inflation data that was used to develop this chart. At the beginning of the war on January 1, 1861 one Confederate dollar would purchase one gold dollar. By May it took $1.05 Confederate dollars to purchase one Gold Dollar or 5% inflation in four months. By February of 1861 it took $1.25 Confederate Dollars to buy one Gold Dollar or 25% inflation. By February 1863 it took $3.00 ConfederateDollars to buy one Gold Dollar or 200% inflation since 1861 but because inflation is generally measured Annually we have to compare the price to the price a year earlier. So from $1.25 to $3.00 is 140% inflation.Interestingly, the inflation rate actually fell during 1864. Why?According to the San José State University Department of Economics from October of 1861 to March of 1864 the commodity price index rose an average rate of 10 percent per month. When the Civil War ended in April 1865 the cost of living in the South was 92 times what it was before the war started. This inflation was obviously caused by the expansion of the money supply. The role of the money supply in establishing the price level is confirmed even more strongly by the results of an attempt to curb the growth of the money supply in 1864.In February the Confederate Congress decreed a currency reform. All bills greater than five dollars were to be converted into bonds paying 4 percentinterest. All bills not converted by April 1 would be exchanged for a new issue at a ratio of 2 for 3. Prior to the reform people spent wildly and drove prices up 23 percent in one month. But, by May 1864, the reform had been completed and the stock of money was reduced by one third. The general price index declined. Eugene Lerner, an economist who studied this inflation, commented on this result:    This price decline took place in spite of invading Union armies, the impending military defeat, the reduction of foreign trade, the disorganized government, and the low morale of the Confederate army. Reducing the stocks of money had a more significant effect on prices than these powerful forces. Confederate Inflation RatesClick for larger imageSo we can see an explicit example of how currency creation results in inflation. Note that the devaluation of the final month from $100 to $1200 may not have been so much a result of currency creation as the fear that once the war was lost the currency would be totally nonredeemable.The method used to create the above chart was to create an index setting January 1, 1861 equal to 100 and adjusting the following months to come up with an Inflation index figure for the first of each succeeding month by interpolating from surrounding months if necessary to fill in the blanks. Note that some months have additional Inflation data for the 15th of the month while other months have no data available. In order to perform the annual inflation calculations we needed a figure for the first of each month. So for example, in order to come up with an inflation number for June 1, 1862 we had to interpolate between the May 15th price of $1.95 and the June 15th price of $2.00

In reply to by silverer

Rabidcephalopod Windemup Fri, 11/03/2017 - 17:33 Permalink

Back in the 1970's when the Guinness Book of World Records was still actually a book, they listed Hungary's hyperinflation as the worst ever. Believe that is still the case - as supported by your numbers above. From what I've read of those times since way back in my formative years, an interpretation of the events leading up to it (their hyperinflation) follows:

1. Post WW II Hungary still had wealth and means, however it was now under Soviet control.
2. The Soviets had figured out how to make everyone equal: Make everyone broke.
3. The printing presses were fired up, and everyone was hyperinflated into communistic splendor.
4. Welcome to equality, Comrade!

It worked very, very well...

In reply to by Windemup

silverer Fri, 11/03/2017 - 17:03 Permalink

Surely, the paper notes had to have some intrinsic value, even as something like durable wallpaper or bird cage liner. Well, at least we know where the US dollar is headed. Nothing like an accurate preview for the benefit of people paying attention.

Mazzy Fri, 11/03/2017 - 17:49 Permalink

They can create fiat currency, but they cannot create intelligence, work-ethic, creativity, social cohesion, or any form of scientific or technological development.The best path forward for Zimbabwe is to voluntarily become an overseas province of China.  Maybe they can do some sort of 99 year lease or something.

Moe Howard Sat, 11/04/2017 - 06:47 Permalink

Remarks on German hyperinflation and gold:How Did Gold Fare in the Most Famous Case of Hyperinflation? The most famous case of hyperinflation is the one that occurred in Germany during the Weimar Republic, from January 1919 until November 1923. According to Investopedia, “the average price level increased by a factor of 20 billion, doubling every 28 hours.” One would expect gold to fare well during such an extreme circumstance, and it did – in German marks, quite dramatically. In January 1919, one ounce of gold traded for 170 marks; by November 1923, that same ounce was worth 87 trillion marks. Take a look. http://inflationdata.com/articles/wp-content/uploads/2012/06/Gold-in-We… for larger image Inflation was at first benign, then began to grow rapidly, and quickly became a monster. What’s important to us as investors is that the price of gold grew faster than the rate of monetary inflation. The data here reveal that over this five-year period, the gold price increased 1.8 times more than the inflation rate. The implication of this is sobering: while hyperinflation wiped out most people’s savings, turning wealthy citizens into poor ones literally overnight, those who had assets denominated in gold experienced no loss in purchasing power. In fact, their ability to purchase goods and services grew beyond the runaway prices they saw all around them.

zimboe Sat, 11/04/2017 - 11:42 Permalink

What, didn't Zimbabwe used to be Rhodesia? When it was run by the terrible white devils, things actually seemed to work, at least better than now.Yah like fucken electricity.A Black can drive a tractor, but he can't fix it or build it. For that he gotta go see Pieter at the tractor shop.Blacks are idiots. They aren't evil, just poor hapless pitiful assholes that can't make it in modern complex societies.I mean, how many times do you need to run the experiment? Haiti as a second, more scientifically defined example.Even as a "racist"(=realist) cynic, I feel for them. I can understand why the idiot snowflake cat-lady minds love them. Blacks are like starving helpless kitties to them- except kitties won't murder you for your wallet and phone. Or for no reason at all except you're a white devil.They aren't very cute....The truth can be often be recognized by the fierce opposition to it.Christ, I hope the new biotechnical/genetic revolution can devise a way, some way, to fix stupid. We need that a lot more than a cure for cancer.My poor bald dog agrees.We need smarter negroes.