South Sudan records Africa’s sixth hyperinflation episode
Newswire Bloomberg warned some 12 months ago that a dramatic devaluation of the South Sudanese pound was set to fuel hyperinflation in the country. At the time, consumer price inflation stood at around 165% y-o-y, indicating that the cost of a benchmark consumer basket increased by 165% in the preceding 12 months.
The World Bank commented in October 2016 that “South Sudan is now in hyperinflation”, with the United Nations echoing this view in December last year. Inflation peaked at 835.7% y-o-y in October 2016 before falling to 457.2% y-o-y in the month thereafter. The latter figure was still the world’s highest official inflation figure, according to Trading Economics.
What is hyperinflation?
According to inflation expert Steve Hanke, hyperinflation occurs when the cost of the consumer basket increases by more than 50% from one month to the next. South Sudan’s monthly inflation rate reached above this level only once during 2016, with the country’s official consumer price index jumping by 77.7% between June and July.
The country’s inflation troubles are due to 1 a growing discrepancy between the official exchange rate and that seen on the parallel market, 2) the adverse effect of below-average production of staple foods on domestic stocks and market demand, and 3) the impact of internal conflict on the movement of goods and provision of services – a third of the country’s major roadways are closed to traffic at present.
Hyperinflation in Africa
Prior to South Sudan’s current hyperinflation episode, Africa experienced five episodes of hyperinflation in Angola (during 1994-1997), the Democratic Republic of the Congo (1991-1992, 1993-1994, and 1998), and most recently Zimbabwe (2007-2008). Globally, academics have recorded 56 verifiable episodes of hyperinflation over the past century.
The accompanying table provides data on some of the key variables associated with past episodes of African hyperinflation, ranked by each country’s highest monthly inflation rate. South Sudan’s experience is most closely associated with the DRC during 1998 – both short-lived and small in magnitude compared to that seen earlier in DRC (Zaire) and later in Zimbabwe.
At present, South Sudan has the highest inflation rate in the world, with a figure of 457.2% y-o-y in November last year, more than double the rate of 180.9% y-o-y recorded for Venezuela during December. African countries accounted for 11 out of the highest 15 inflation rates globally near the end of 2016.
The International Monetary Fund (IMF) commented during December 2016 that South Sudan “faces massive economic challenges in the wake of prolonged internal conflict and subdued oil prices.” The multilateral organisation indicated two months earlier that is expected inflation in the country to average 111% during 2017.
The South Sudanese economy is cautiously expected to see some growth this year after contracting by almost 6% last year. (Renewed conflict, the displacement of millions of citizens, and high inflation were to blame for last year’s recession.) The outlook for 2017 has many downside risks, including an escalation in conflict pressuring investor sentiment, oil production and consumer spending.
Source: Hanke & Bushnell (2016). Note: South Sudan is not included in the Hanke-Krus world hyperinflation table. According to co-creator Steve Hanke, this is due to the questionable quality of data collected by the country’s National Bureau of Statistics (NBS). The organisation’s consumer price estimates are limited to observations from just two towns.
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