Country Report Zimbabwe September 2010

Outlook for 2010-11: Inflation

Although inflationary pressures moderated in mid-year, upward pressure on prices is likely to persist in 2010 because of increasing wage demands and the strengthening of international food and fuel prices. Much will depend on the direction of the rand. Should the South African currency weaken significantly, import prices in Zimbabwe-which obtains 40% of its imports from South Africa-will fall. However, we expect the rand to maintain a trend of gradual depreciation in 2010, and it is likely that Zimbabwean inflation will exceed the official forecast of 5% in 2010 and is likely to return to double-digit levels before year-end, although it will probably average 6.1% over the year as a whole. Although the rate is expected to average 8.5% during 2011, it should remain low by historical standards, provided that the authorities do not revert to the disastrous policies used previously, such as printing money to finance deficits.

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