Thursday, November 29, 2007

How Bad is it ???

Have you heard that inflation is really bad in Zimbabwe?

How bad is it?

It’s so bad - that the government statistical office can no longer calculate it! Wow, that’s bad. But how can that be?

Inflation is calculated by comparing the average cost of a set basket of goods - the cost of margarine, flour, sugar, milk, maize meal, salt, tomatoes, transportation etc. In Oct 07 inflation was officially recorded at 14,800% in Zimbabwe - so prices go up daily and even hourly.

The government decided to take action and mandated all prices be cut by 50% and held there. Of course there is a relationship between cost of goods and selling price in order to make a reasonable profit. So when this cost cutting was declared, shops could no longer afford to buy goods since they are now required to sell at a loss.

The goods in the shops quickly sold out with the new lower prices but there were no replacement goods being purchased. You can guess how this ends up; yes the shops are all empty now!

Now let’s get back to the cost of that basket of goods... what goods? ... That’s right; there are no goods to put in the basket! There is no way to calculate inflation on an empty basket.

On the positive side - at least everything is reasonably priced!

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