Yesterday ZIMSTAT the government agency tasked with producing vital statistical information from Zimbabwe took a break from their usual number crunching to issue a scathing communique on Professor Steve Hanke. The agency felt that they needed to explain the difference between their inflation rate of 256% which is far less than Professor Steve Hanke’s estimation of around 600%. ZIMSTAT went into detail explaining their methodology and explaining how they arrived at their rate (CPI) contrasting this with Professor Hanke’s rather unorthodox method.
If you are active on social media or were around during the 2008 economic meltdown period then you have probably heard of Professor Steven Hanke. If not then all you need to know is that he is a famous professor of Applied Economics from John Hopkins University in the United States. During the 2008 period, he was one of the remaining sources of inflation in Zimbabwe during a time when the rate moved so fast that even ZIMSTAT had given up on coming up with inflation numbers. This brought him to the attention of a section of Zimbabwe’s population, especially political players and commentators.
The truth though is that Hanke covers a lot of countries using his index and Zimbabwe is just one of them. Also apart from the said active commentators on social media not many people take his inflation figures at face value. I have never met anyone who seriously thinks his figures are a replacement for ZIMSTAT’s CPI. It’s quite easy to explain why ZIMSTAT’s CPI figures are quite different from Professor Hanke’s figures. As ZIMSTAT rightly points out the methods used are quite different. While Professor Hanke’s data is certainly intriguing his methods are such that the resulting data would never correspond to the more widely accepted methods of using the Consumer Price Index (CPI).
It doesn’t really matter
ZIMSTAT is quite right about one thing. Those saying the agency is producing fake inflation data have no proof whatsoever to back up their claims. Using Hanke’s inflation figures as proof that ZIMSTAT is lying is illogical. The inflation figures that Hanke comes up with would never correspond to inflation figures derived using the method that ZIMSTAT uses. If ZIMSTAT is lying then every government in the world is lying by that same logic. On the flip side, Hanke’s figures are not inaccurate as the ZIMSTAT document seems to imply. They are just different from ZIMSTAT’s CPI.
In the grand scheme of things, it does not matter much which figures you choose to believe and we can prove it. Here are the top five countries with the worst inflation according to Hanke:
- Zimbabwe’s inflation rate has a rate of 487% while the recorded inflation using CPI is now 256%
- Turkey has a Hanke rate of 126% while their last recorded CPI from July was 79.6%
- Sri Lanka has a Hanke rate of 109% compared to their CPI of 60.80%
- Cuba has a Hanke rate of 108% and no one knows their CPI
- Argentina has a rate of 81% according to Hanke while their CPI from may shows 61% as the inflation
NB In general the Hanke Index is consistently higher than CPI because it uses a different methodology. Consistency is what matters when it comes to the analysis, not absolute numbers.
Based on the above you can see that even though the numbers produced by ZIMSTAT are different from those produced by Professor Hanke they do not materially affect certain facts. The fact remains that whoever you chose to go with there is no arguing with the fact that Zimbabwe’s inflation rate is probably in the top five highest rates in the world. That our inflation figures are bad. You cannot compare the two figures and conclude that one is wrong. They are apples and oranges.