Wikinvest Wire

And then there's Zimbabwe

Tuesday, July 31, 2007

Reuters reports on an IMF estimate that, by the end of the year, the annual inflation rate in Zimbabwe may be so high that most humans won't be able to understand what it means.

Nearly anyone can grasp a percent change of 20, 50 or 100 - even a 1,000 percent increase is relatively easy to conceptualize - but when it goes much beyond that, there are no easy reference points.

"...If recent monthly trends continue, (IMF) staff projects that year-on-year inflation could well exceed 100,000 percent by year-end," Abdoulaye Bio Tchane, the IMF's Director of the African Development, told Reuters in an interview.
What the heck does that mean?

The simplest way to think of it is as follows: if 1,000 percent represents a 10x increase, then 100,000 percent would be a 1,000x increase, meaning that if something cost $1 on January 1st of 2007 in Zimbabwe, it could cost $1,001 on December 31st.

Their central bank (yes, they do have a central bank) apparently hasn't learned how to manage "inflation expectations", an approach that has so far proven successful here in the U.S. with the Bernanke Fed, otherwise "actual inflation" wouldn't be so high.



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1 comments:

Anonymous said...

I am sure by now no one is accepting paper except by gunpoint and everyone is now on the barter system.

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