This ENCA article warns of the alleged dangers of deflation in Zimbabwe. Besides not distinguishing (downward) changes in consumer prices from changes in money supply, it has some gems worth pointing out. And it leads me to wonder if two things far more dangerous to the Zimbabwean economy than deflation aren’t economists and financial journalists laying the groundwork for economic interventionism.
The article includes a sweeping statement revealing very little understanding of time and price dynamics.
Sustained deflation can be dangerous for an economy as a widespread decline in prices may lead to consumers delaying purchases.
The above statement confuses GDP for the “economy”: GDP may very well decline in a consumer price deflation environment, but it is another question altogether to argue that a whole economy is put at risk under delayed consumer purchasing (also known as saving).
The article also quotes two economists. According to Godfrey Kanyenze, director of the Labour and Economic Development Research Institute of Zimbabwe,
Fewer people have money to buy the available goods and services. We really need to come up with fiscal stimuli to whip up demand.
Erich Bloch, an economist based in Bulawayo, says that
[price deflation delivers] no benefit or prejudice to the consumer. It’s as bad as continuous inflation.
The writer of the article also quantifies the “excess capacity” of the Zimbabwean economy, whatever that is supposed to mean.
But economists estimate the country is only running at a third of its current capacity, and conditions have failed to improve after President Robert Mugabe’s ZANU-PF party won polls in July last year.
