Evidence of Hidden Inflation in Zimbabwe

Abstract

Unofficial inflation can be explored from two different angles which constitute either the understating or overstating of officially announced inflation figures and the two are manifested as repressed inflation and hidden inflation. In this paper the later form of unofficial inflation is investigated and there is evidence of the existence of hidden inflation in Zimbabwe. Evidence in this paper indicates that official inflation figures could have been understated by over 35% as at June 2007. These results are new from the perspective of the hidden type of unofficial inflation and they complement evidence of repressed inflation in Zimbabwe noted by Munoz (2006). The presence of hidden inflation however could be higher than this evidence if black market prices, substitute products and a formal re-weighting of the consumer price index components were to be accounted for. This paper also finds a statistically significant positive relationship between the food component of the inflation weights and the international poverty line as defined by $2 per day. The positive connection between poverty and inflation weights demonstrates the need for regular household consumption surveys in the face of increased poverty lest the integrity of officially announced figures is questionable.

Keywords: Inflation, Unofficial inflation, hidden inflation, inflation weights, poverty

JEL Classification: E31, I31, I32