Question

Read this article titled “Zimbabwe’s Inflation Rate Skyrockets” from The Guardian newspaper dated February 14, 2007 and then answer the following questions below. Here’s the article

Huge price increases for bread, electricity and meat drove Zimbabwe’s annual inflation rate to 1, 593.6 percent, the Central Statistical Office said.

The figure for January 2007 represents a 312.5 percent increase on the December rate, the biggest leap in 17 months. Economists have said there could be hourly price increases in stores by May or June, the Zimbabwe interdependent newspaper reported back in January 2007.

Consumers struggle to keep up with daily price changes for food, clothing and furniture, while the government accuses businesses of sabotaging the economy by adjusting prices upward.

A wave of discontent is sweeping through the public sector for seven weeks, where nurses and doctors have been on strike four hospitals in the capital, Harare, and in Bulawayo.

A civil servants union over the weekend of February 14, 2007, gave the government until Friday, February 13, 2007, to agree to a 400 percent wage hike for its 180,000 members or face a strike.

Questions:

How much did Zimbabwe’s inflation rate increase by and what products were affected by inflation the most?

Were consumers better off or worse off when inflation had affected Zimbabwe? Why? What can consumers do if they know prices are rising in the future

Did inflation cause sociopolitical tensions in the public sector? If so, how?

3. What is the consumer price index(CPI)? Explain how the CPI is calculated.

             4. Suppose the CPI was 140 in 2000 and 146 in 2001. The goods in question are fish, steak and nuts. Please calculate the inflation rate for 2001. Did prices for goods like nuts, fish and steak decrease or increase between 2000 and 2001? Why?

            

           5. Assume that Ms. Sawyer's salary at Professor Dupuis’ Oil Co. is now $75,000 in 2009, up from $70,000 in 2008, while the CPI is 165 in 2009 and the CPI for 2008 is 150. Has Ms. Sawyer’s real income between 2008 and 2009 increased, decreased or remained the same? Also, calculate the inflation rate for 2009 and the percentage change in nominal income between 2008 and 2009. Then, based on your real income, inflation rate and percentage change in nominal income calculations, has Ms. Sawyer salary increase, kept up, more than kept up, or not kept up with inflation. Why?

Answer 1

a.) Inflation rate increased by 312.5%, & food sector was worst affected.

Consumers were worse off as they are always coats associated with inflation, & it's always hard to adjust ,& purchase power sharply falls.

If they know that prices will rise, they should buy more food stuff keeping in mind the future requirements.

Inflation weakens the domestic currency & reduces employment & growth & can lead to stagflation.

It erodes the purchasing power too in society