Inflation Is Spiking In Zimbabwe (Again): And Why High Interest Rates Aren’t The Answer

There are risks to the Zimbabwe central bank’s decision to hike rates too aggressively

By Professor Jonathan Munemo
The central bank of Zimbabwe has raised its benchmark rate from 80% to a fresh record of 200%. This increase comes as Russia’s invasion of Ukraine is driving global commodity prices higher, exacerbating inflation in many countries around the world, including Zimbabwe.

Zimbabwe’s Finance Minister Mthuli Ncube’s thinking is that aggressive tightening of monetary policy is necessary to counter these inflationary pressures. In Zimbabwe too there has been a rise in the prices of imported food, fuel, fertiliser and other essential commodities.

This is why, according to the minister, inflation accelerated to 192% in June. In fact inflation was highly elevated prior to Russia’s invasion of Ukraine. From 2000, it rapidly increased from single digits to 114% in 2004, climbed even higher to hit 157% in 2008, and then peaked at 558% in 2020.

There are two longstanding fundamental drivers of inflation in Zimbabwe. The first is monetary expansion that is not supported by economic growth. […]