Major causes of inflation in Zimbabwe and southern africa in general and (possible solutions)

1560 Words Sep 11th, 2004 7 Pages

Inflation can be described as a tendency for the general price level to increase over a given time [] period. It can also be viewed as a case where too much money [] is chasing few goods. Inflation is usually measured by the Consumer Price Index (CPI) where a representative basket of consumer goods is analysed for changes in the price level over a defined time [] frame.

Generally, inflation results from demand pull, cost push and imported inflation. Demand pull arises due to supply side bottlenecks which will be outweighed by increased demand. Cost push inflation results
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The acquisition of property [] led to liquidity problems for most the banks [] as their money [] was tied up in assets which are proving difficult to off-load quickly. People [] who had properties were encouraged to spend more as they were observing their assets appreciate in value thus creating an additional aggregate demand within an economy, this has an inflationary tendency.

Land Reforms

The implementation of the land reforms or farm invasions in 1999 resulted in supply-side bottlenecks in terms of output produced. Output was low due to the disturbances in the farming sector and this was further worsened by uncertainty in relation to land-ownership rights. The uncertainty led to reduced farming activity as this led to reduced agricultural output. Demand for food [] outweighed supply and this resulted in shortages and the birth of parallel market which translated to higher prices thus contributing to inflation levels. Land reforms also initially disturbed other cash crops such as tobacco which is the major export earner for the country.


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