Zimbabwe inflation tops 11 mln pct as talks drag

By Nelson Banya

HARARE, Aug 19 (Reuters) - Zimbabwe's inflation rate rocketed to over 11 million percent in June in a sign of the worsening economic disaster in the absence of a deal to end the political crisis.

A month after they began, power-sharing talks between President Robert Mugabe's ruling ZANU-PF and Morgan Tsvangirai's opposition are deadlocked over who will control the government despite pressure from southern African leaders.

Critics accuse Mugabe's administration of printing money to pay for his re-election costs in a one-man vote condemned around the world and in a desperate attempt to keep the economy afloat.

The Central Statistical Office said year-on-year inflation in June jumped to 11.27 million percent -- the highest current inflation rate in the world -- from 2.2 million in May. That would mean prices double about every three weeks.

Many economists believe the real figure is higher still.

"Our inflation figures are way above that... We really need to change the way we do business," said an economist at a domestic bank who declined to be named.

A sharp rise in inflation in June coincided with campaigning for the June 27 run-off vote from which Tsvangirai withdrew, citing violence which he said killed over 120 MDC supporters.

"It may be related to the government expenditure around the elections although I don't have the details," said Leon Myburgh, sub-saharan Africa specialist at Citigroup in Johannesburg.

"When you're going into a hyper-inflation cycle, until such a time as the authorities take appropriate steps to counter it, it seems to continue to spiral out of control".

HOPES DASHED

The election dashed hopes it might rescue Zimbabweans from years of decline that have ruined what was once one of the region's most proposerous economies but now suffers 80 percent unemployment and shortages of food and fuel.

Regional leaders, fearing the consequences of total meltdown in Zimbabwe, have been pushing Mugabe and Tsvangirai to reach a negotiated settlement. Millions of people have already fled into neighbouring states.

Hopes of economic recovery are pinned to a deal, but Western donor countries -- whose support would also be vital -- have said they will only recognise a government led by Tsvangirai.

The potential aid package gives him his main leverage.

Officials of Tsvangirai's Movement for Democratic Change say Mugabe still wants to retain control of government, and chair the cabinet, only allowing Tsvangirai some ministries.

The central bank re-denominated the Zimbabwean dollar currency on July 30 by slashing off 10 zeros but this has had no effect on stemming the devaluation of the currency. It trades at Z$100 to the greenback, or Z$1 trillion in the old currency.

Many Zimbabweans have resorted to bartering goods and rely on help from relatives abroad. The staple maize, sugar and other basic foodstuffs are in short supply. (Additional reporting by Stella Mapenzauswa in Johannesburg: Writing by Marius Bosch; Editing by Matthew Tostevin)