Harare, March 23 (NNN-NEW ZIANA) The drought which has hit Zimbabwe this year is likely to push the country’s inflation, currently standing at 1,729 per cent on an annual basis, to new heights through food imports, according to an economist, Dr Eric Bloch, quoted by the by the Herald newspaper here Thursday.

Noting that poor rains experienced in the current season meant agricultural output would be low, he said this would result in supply bottleneck as Zimbabwe’s manufacturing industry derived most of its raw materials from agriculture.

"Automatically, the drought means more inflation for us because we are going to be forced to fund expensive food imports," Bloch said.

"Therefore, prospects for a meaningful recovery in the local economy during 2007 remain elusive with agriculture and manufacturing yet to respond positively to the policy initiatives aimed at reviving the sectors. Inflation is certain to continue breaking record territories if the proposed social contract fails to come into being.

"While there might be a seeming improvement in maize availability, current price instability, and a projected food deficit suggests that there will be continued cost-push inflation pressure arising from food requirements beyond the second quarter."

The newspaper said there had been inevitable pressure on inflation, principally from food shortages and foreign currency costs, due to the widening gap between the fair exchange rate and auction rate. The resurgence in inflationary pressures reflected a combination of factors, key among them being the supply situation, it quoted economists as saying.

"The biggest impact is going to be felt on food inflation, which is likely to rise steeply in order to bridge the financing gap emanating from imports," explained a research analyst with a Harare asset management firm. "I think with the drought, it will be very difficult for the central bank to contain inflation this year because food prices are likely to increase by very wide margins."

Zimbabwe’s annual inflation climbed to 1,729 per cent at the end of February while the month-on-month figure slowed down to 37.8 per cent.

February inflation figures sparked new calls from analysts for the central bank to tighten its inflation-fighting policies. The analysts predict that given current supply bottlenecks, sharp money supply growth and huge budget deficit among other factors, inflation will this year perhaps hit the 3,500 per cent mark.

Reserve Bank Governor Gideon Gono has also indicated recently that in the absence of a shared will for economic prosperity, otherwise known as a "social contract", prospects for a slowdown in inflation this year were remote.

Clearly, Gono pointed out, if the country is to tame the dragon of inflation, the three key economic agents -- business, labour and Government -- will have to pull in the same direction. In proposing the social contract, Gono also hit out at the twin evils of corruption and speculation, especially in scarce and/or subsidized commodities, singling out maize and fuel.