‘with the Current Pace of Changes in Month on Month Inflation, It Signals That the Government Inflation Projection of 6.4% by Year End Will Not Be Achieved’ .Discuss Saying Whether You Agree or Not.

Inflation is the measure of price increases within a set of goods and services over a period of time like monthly, quarterly or yearly. The most common gauge of inflation is the Consumer Price Index (CPI) which measures the price increases (decreases) of basic consumer goods and services. In effect, inflation decreases the value of money and makes it more expensive to buy goods and services (Parkin and Bade, 1997).

The Central Statistical Office (CSO) is the branch responsible for the computation and subsequent production of Inflation Data in Zimbabwe. They also use the CPI as the inflation measure. Below is the new CPI index adopted in 2001 for the computation of inflation showing the weights of each category or sector (Source CSO).

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Category 2001 Weight

Food 31.9

Beverages & tobacco 4.9

Housing, elect, water 16.2

Transport 9.8

Furniture/household goods 15.1

Clothing & Footwear 5.7

Health 1.4

Education 2.9

Communications 1.0

Recreation 5.7

Rests & Hotels 1.5

Miscellaneous 3.9

In the 2009 Fiscal Policy report, the Ministry of Finance projected an inflation of 6.9% for the year, but this was then reviewed downwards to 6.4% in the Mid-Term Review. The current month on month inflation trend for 2009 is shown below:

Source: CSO (2009)

As is shown in the above graph, there is an upward trend in the inflation from February up to date. The purpose of this essay is to argue whether the Inflation prediction of 6.4% is going to be achieved or not by Year-end 2009.

To determine whether the 6.4% inflation prediction is going to be achieved or not, this paper is going to critically look at the major inflation causes and drivers in the Zimbabwean economy and to analyse how these are being addressed in the Monetary and Fiscal Policies. Other economic developments and programmes that have been adopted like the Short Term Economic Recovery Programme (STERP) and their impact on inflation will also be looked at.

Reserve Bank of Zimbabwe (RBZ)...