US economy says ZimStat is run by a clown

US professor of applied economics at Johns Hopkins University in Baltimore, Maryland, and senior fellow at the Cato Institute, Steve Hanke, has fired back at Zimbabwe Statistical Agency (ZimStat) chief executive Taguma Mahonde, after challenging the Purchasing Power Parity Method (PPP) that the US expert uses to calculate rates of price increases in various countries including Zimbabwe.

Says Hanke: “FLASH: A circus, amply supplied with clowns, has arrived in Harare, Zimbabwe. The main clown is none other than the general manager of Zimstat Taguma Mahonde. He is holding a banner: ‘Zim Inflation = 256.9%/year.’ SPOILER ALERT: Zim inflation = 479%/year.”

Stung by Hanke’s PPP theory for calculating the average rate of monthly and annual price increases – which typically puts inflation well above the official figures – the Zimbabwean government, through Mahonde, threw guns to fire against the US currency and the inflation guru on the issue.

Mahonde says the PPP approach is flawed. In any case, he adds, Hanke did not criticize the Zimbabwean government’s methods until after 2018, after its alleged failure to land a multimillion-dollar consultancy he allegedly ogled.

PPP is the idea that goods in one country will cost the same in another country, once their exchange rate is applied. According to this theory, two currencies are at par when a basket of goods has the same value in both countries.

This is what Hanke uses to calculate inflation, including in Zimbabwe. He previously wrote about Zimbabwe’s hyperinflation in 2008.

Meanwhile, official government metrics are calculated by determining changes in local currency item prices in the official basket. These prices are collected by sampling the prices of the items in the shopping cart. Then the items in the official basket are weighted and a price index is produced.

In contrast, PPP is based on exchange rate data and price level differences between two countries. This avoids the measurement errors and weighting issues associated with official price indexes, says Hanke, who has taught economics and held high-level government positions advising on monetary issues around the world.

Mahonde differs, saying Hanke’s method is “questionable”.

“Hanke uses exchange rates and stock indices to calculate inflation rates. He bases his argument on the purchasing power parity theorem,” Mahonde explains.

“In Zimbabwe, it has long used the old mutual implied rate. This is in addition to the fact that stock prices are determined by:

a) Fundamental factors and these have a lot to do with business performance;

b) Technical factors relating to historical market prices of the Shares;

c) Market sentiment – this is the most vexing and subjective category, where subjectivity

join the game; and

d) Speculative motive.

“However, the market for goods and services is not influenced by the same factors as the stock market. Accounting for inflation involves tracking commodity prices in the market for goods and services. is not the same as tracking price action in the forex and stock markets, so Hanke’s model and methods become questionable.”

But Hanke, a leading global expert on currency boards, measuring and stopping hyperinflation, privatization, currency and commodity trading, insists the PPP theory is a proven method – best – to measure inflation above 25% per year, as is the case with Zimbabwe now.

Says Mahonde: “What is interesting is that as early as the 18th century, the French, in their wisdom, could differentiate between stock, property and foreign exchange markets. They respected the differences of these markets as well as the different factors that drive these three markets. separate markets.

“What is true is that markets are not independent of each other because changes in one market can affect another. However, they were, are not, and never will be substitutes.”

The principle used locally and internationally when collecting price data is that price collectors collect the prices consumers would pay for goods or services, he adds.

“In cases where prices are quoted in foreign currencies, price collectors are required to ask store staff how much the product costs in local currency. The conversion is done by the shop owner so that the price collector enters the price that the consumers would pay,” Mahonde said.

“This principle also puts an end to the argument made by some that ZimStat only captures prices at official exchange rates. be it supermarkets, liquor stores, saloons, open markets, etc.

“In short, ZimStat doesn’t look for exchange rates or cost increases because they’re already factored into the final price.”

Mahonde says Hanke initially backed the government’s approach, hoping to secure a consultancy contract.

“The arrival of a new government in Zimbabwe in 2017 saw Professor Steve Hanke resort to positive language. He would present his proposals on monetary sector reforms in a positive way,” he says.

“It would appear that Hanke was looking for a few million dollar contracts in return for consultancy work to stabilize the monetary side of Zimbabwe’s economy. His tweets were telling in 2017 as he was not aggressive but showed interest.

“The professor was doing a combination of public relations and canvassing for a consultancy contract. He pursued this mirage for over 12 months.

“In the process, he made sure to remind everyone of his previous engagements with other governments like Bulgaria. Interestingly, his prescription remained the same:

a) Dollarize; and

b) Establish a currency board. “

Mahonde adds: “In the last quarter of 2018, the professor then realized that no contract was coming his way. That’s when the professor’s animal took over. So far, he speaks negatively of Zimbabwe’s authorities, most being branded as incompetent, he pushed the agenda that miscalculating consumer price indices or suppressing inflation rates is synonymous with Zimstat.

“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.

“The authorities of Türkiye reminded the professor that there is no way to calculate inflation in Türkiye using the exchange rate and stock indices.

“Interestingly, it is not ZimStat alone that is accused of all kinds of evil. The professor has a list of over 30 countries that are all accused of feeding stakeholders with faulty statistics.”

Hanke insists that the official statistics are wrong.

About Sharon Joseph

Check Also

Why has the West nervously predicted when China’s economy will overtake the United States?

Photo: GT It is not surprising that it is increasingly fashionable to predict the evolution …