BY TATIRA ZWINOIRA
US economics professor Steve Hanke, who came under fire in Zimbabwe on Wednesday for preparing inflation data, called the criticism “hogwash” and defended his controversial formula.
Hanke, who claims to ‘accurately calculate Zimbabwe’s inflation on a daily basis’, has been a thorn in the side of Zimbabwean authorities due to his continued questioning of inflation data from the Zimbabwe National Statistics Agency (ZimStat). who he says are still underestimated.
The latest fallout surfaced two weeks ago after Zimbabwe’s annual inflation rate hit 256% in July, an increase of 65 percentage points from 191% in June.
Hanke disputed the ZimStat figure and said inflation was heading towards 600%.
ZimStat chief executive Taguma Mahonde claimed Hanke’s views only turned aggressive after he failed to secure advisory roles in President Emmerson Mnangagwa’s administration in 2018.
He said Hanke was less qualified to give a correct view of Zimbabwe’s inflation rate because he was far away in the United States where he did not have access to the raw data needed before coming up with a figure.
Mahonde questioned Hanke’s method of calculating inflation data, particularly its reliance on exchange rates.
But Hanke said he stopped relying on that formula more than a decade ago.
“That’s rubbish,” said Hanke NewsDay Business yesterday.
“Note that although I used stock market indices to estimate Zimbabwe’s hyperinflation in 2008, this is no longer necessary,” the economist said.
“For inflation rates above 25% per year, the most reliable method of measurement is the theory of purchasing power parity, which is a proven method that has been around since the end of the 19th century. I use the purchasing power parity method to measure current inflation in Zimbabwe.
In his six-page article attacking Hanke, Mahonde also hit out at the media for questioning the validity of data produced by his office.
“The arrival of a new government in Zimbabwe in 2017 saw Steve Hanke resort to positive language,” Mahonde said.
“He would present his proposals on monetary sector reforms in a positive way. It seems that Hanke was looking for a few million dollar contracts in exchange for consultancy work to stabilize the monetary side of the Zimbabwean economy.
“His tweets were telling in 2017 as he wasn’t aggressive but showed interest. The professor was doing a combination of PR and canvassing for a consultancy deal.
“He pursued this mirage for more than 12 months. In the last quarter of 2018, he then realized that no contract was coming to him. That’s when the professor’s pet took matters into his own hands. So far, he speaks negatively of Zimbabwe’s authorities, with most being described as incompetent. He insisted that miscalculating consumer price indices or suppressing inflation rates is synonymous with ZimStat,” Mahonde said.
“A person outside any country cannot go through a systematic process of collecting price data from retail outlets in a fixed sample and applying the processing techniques required to arrive at an index of ‘inflation.
“Steve Hanke uses exchange rates and stock indices to calculate inflation rates. He bases his argument on the purchasing power parity theorem.
“In Zimbabwe, it has long used the old mutual implied rate. This is on top of the fact that stock prices are determined by fundamental factors and these have a lot to do with company performance,” Mahonde added.
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