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Zimbabwe's Inflation is Still Surging

Economics / Inflation Jul 01, 2019 - 12:54 PM GMT

By: Steve_H_Hanke

Economics

The most important price in an economy is the exchange rate between the local currency and the world’s reserve currency — the U.S. dollar. As long as there is an active black‐market (read: free market) for currency and the data are available, changes in the black‐market exchange rate can be reliably transformed into accurate estimates of countrywide inflation rates—if the annual inflation rates exceed 25%. The economic principle of Purchasing Power Parity (PPP) allows for this transformation.

I compute the implied annual inflation rates with high‐frequency data and report them on a daily basis. PPP is used to translate changes in the black‐market exchange rates into annual inflation rates. For the countries that I follow each day, the table below shows the annual rates for the five countries with the highest inflation rates.



Zimbabwe's inflation is still surging. Zimbabwe's annual inflation rate as of June 27, 2019 is a whopping 482%/yr.

Venezuela has been suffering from hyperinflation since November 2016 and holds down the top spot on my list, with an annual inflation rate of 23,525%. Note that my MEASUREMENT of the implied inflation rate is accurate and much lower than the widely reported International Monetary Fund’s (IMF) end‐of‐year FORECAST of an absurd 10,000,000%. I write “absurd” because no one has ever been able to forecast the durations and magnitudes of hyperinflations. You can MEASURE hyperinflations with great accuracy, but you can’t FORECAST their durations or magnitudes.

A comparison of the IMF’s projections for the other four countries’ year‐end annual inflation rates are also way off. Given these large divergences and the IMF’s poor record of forecasting inflation in countries experiencing elevated inflation rates, one wonders why the financial press reports these forecasts, which have usually proved to be useless.

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By Steve H. Hanke

www.cato.org/people/hanke.html

Steve H. Hanke is a Professor of Applied Economics and Co-Director of the Institute for Applied Economics, Global Health, and the Study of Business Enterprise at The Johns Hopkins University in Baltimore. Prof. Hanke is also a Senior Fellow at the Cato Institute in Washington, D.C.; a Distinguished Professor at the Universitas Pelita Harapan in Jakarta, Indonesia; a Senior Advisor at the Renmin University of China’s International Monetary Research Institute in Beijing; a Special Counselor to the Center for Financial Stability in New York; a member of the National Bank of Kuwait’s International Advisory Board (chaired by Sir John Major); a member of the Financial Advisory Council of the United Arab Emirates; and a contributing editor at Globe Asia Magazine.

Copyright © 2019 Steve H. Hanke - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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