Array

HARARE, June 9 (Reuters) Days after Zimbabwe's central bank introduced a new 100,000 dollar note to try and keep pace with inflation, the price of bread almost doubled to well above the new denomination -- an irony not lost on shoppers.

''It doesn't matter what size denomination they come up with, we will still need bags of money for a trip to the supermarket,'' one Harare resident said as he watched a cashier count out piles of notes for his modest basket of groceries.

A loaf of bread has shot up to around Z$130,000 (US$1.28) from Z$85,000 sanctioned by President Robert Mugabe's government, setting the tone for similar hikes for other staples in a country saddled with the world's highest inflation rate.

With the government announcing on Friday that the annual inflation rate hit a record 1,193.5 percent in May, cynics say the Reserve Bank of Zimbabwe should simply bite the bullet and introduce a million dollar note.

Petrol prices have surged to anything between Z$250,000 and Z$350,000 a litre from around Z$200,000, tracking a thriving foreign currency black market where the local dollar is quoted at around 315,000 to the U.S. dollar, far above the official rate of 101,195.

''It gives me a headache getting my brain around all these zeros,'' said Harare housewife Doreen, displaying a Z$60 million dollar receipt for the three months' worth of groceries she had just purchased to try and beat erratic price hikes.

Doreen, who declined to give her last name, is one of a tiny minority who can afford bulk purchases in a country where soldiers and teachers, representing a sizeable chunk of Zimbabwe's working class, earn an average Z$30 million ($296 at the official rate) a month.

Salaries have fallen far short of inflation, which analysts see hitting 1,800 percent by the end of the year, a stark indicator of an economic meltdown widely blamed on government mismanagement.

Zimbabwe's main opposition party and the main labour federation have warned of nationwide protests over the crisis, and although no firm dates have been set, analysts say public anger over rising living costs is keeping tensions high.

MANY LEFT SHIVERING IN COLD In the past week the prices of telephone services have also rocketed, piling pressure on an urban population grappling with with frequent electricity cuts which have left urban households shivering in the cold as the winter season sets in.

In its latest report on price patterns, the Consumer Council of Zimbabwe said an average family of six needed $485 in May to meet its basic requirements including food, transport and rent, up from $405 the previous month.

CCZ said water and electricity costs had surged by 185.9 percent over the month while transport went up 66.7 percent.

''The explicit comparison of the wages which some low income earners get and the poverty datum line reflects that some consumers are now forced to forego some basic food and non-food items,'' the watchdog said.

Zimbabwe's economy has contracted by 40 percent over the past 8 years, bearing out the World Bank's assertion that the southern African state has the fastest shrinking economy outside of a war zone.

Analysts scoff at the central bank's hopes of taming inflation to two-digits by year-end, saying realities on the ground point to December's figure topping 1,800 percent.

Mugabe, in power since independence from Britain in 1980, denies critics charges that he is to blame for Zimbabwe's economic woes, and on his part points to sabotage by local and foreign opponents of his controversial drive to forcibly redistribute white-owned farms among blacks.

REUTERS PV PM1721