Inflation in Zimbabwe

In Q 1.5.3. they discuss the rapid inflation rates in Zimbabwe and the crisis it caused, in July 2008.

The three factors that may be causing inflation in Zimbabwe are:

- one of the main factors is that the price of food is raising too much, one issue of this is the fact that Zimbabwe is forced to sell it's staple food, maize out of the country, and import such important products, which are more expensive than home-grown products. The high food prices mean that everyday, people need to spend more in order to buy them, making inflation worsen.

- there is also problems with electricty, as it is expensive to power the homes, it is difficult for even the government and companies to supply the vast demand of power, especially in the farming sector, as they need lots of power to irrigate their crops. All this means more money has to be spent to buy the power and keep the farms going, which are an important source of income for the country.

- the final problem is the huge amount of un-employment, which means that people just do not have the money to pay for these basic living costs, making large debts and raising inflation through that route.

The combination of all these factors has caused inflation to raise at such a high level, that it just makes things worse in the end. These problems must be curbed in order for Zimbabwe to have a chance of recovery.

The main problems that uncontrollable inflation could cause for Zimbabwe are:
- a raise in food prices, meaning that the cost of living would be put even higher
- a serious problem with importing and exporting goods, as the currencies would transfer to Zimbabwe dollars and be worth even less the next day
- wage costs would have to raise, to match the high living costs, which would make the production costs for a company higher, which would make the product it produces more expensive, which would make inflation higher (becoming an endless cycle without some way to change it)
- poverty will worsen, which it already has come to an intolerable level, if there is a tolerable level of poverty
- people will not be able to afford living costs
- mass emmigration out of the country in order to find work in places with lower living costs, which will cause problems with finding workers in the country, making it even worse off
- there will be less savings, as the worth of them will become lower, so then there will be more spending, and in the long term, much less money for investments

Some information on the problems in Zimbabwe were found at this website: http://news.bbc.co.uk/2/hi/business/6665749.stm