Inflation-ravaged Zimbabwe orders prices cut in half

HARARE (Reuters) - President Robert Mugabe's government has ordered prices of basic goods and services be slashed by half to protect Zimbabweans battling with the world's highest inflation rate, official media reported on Tuesday.

"Government has directed manufacturers, retailers and wholesalers to reduce prices of basic commodities ... by up to 50 percent with immediate effect as it takes measures against the wave of unjustified price increases over the past few weeks," the Herald newspaper said.

Zimbabwe, once one of Africa's most prosperous countries, is suffering a deep economic crisis, marked by soaring inflation and poverty, high unemployment and chronic shortages of fuel, food and foreign exchange.

Prices of basic goods, such as cooking oil, flour and milk, are rising on a daily basis, with increases on some items jumping as much as 300 percent in the past week. Many of the country's 15 million people now are unable to feed themselves or their families.

Inflation hit 3,700 percent on an annualized basis in April, according to the latest official data, and is expected to continue rising throughout the remainder of the year.

Industrialists, who are operating at a third of normal capacity, argue that the price increases are justified because they must pass on the cost of purchasing the foreign currency needed to import raw materials.

The value of the Zimbabwean dollar has tumbled on the country's thriving black market, where it was trading recently between 170,000 and 200,000 to the U.S. dollar. The official rate for the currency is 15,000 to the U.S. dollar.

Under the government's new pricing plan, businesses must revert to the prices quoted on June 18, 2007 while a commission investigates whether the recent jump in prices was justified, the paper said, quoting International Trade Minister Obert Mpofu.

Prices of basic commodities, including bread, flour, salt, sugar, cooking oil, beef and fuel, are among those affected.

"Government is aware that these escalating price increases are a political ploy engineered by our detractors to effect an illegal regime change against the ruling party and the government following the failure of illegal economic sanctions," Mpofu was quoted as saying.

Mugube's government routinely blames the country's economic crisis on sabotage by Britain and other Western governments, which it says are punishing Zimbabwe for seizing thousands of white farms and redistributing the land to poor blacks.

Western nations have imposed a variety of travel and financial sanctions on Mugabe and other senior Zimbabwean officials.

Critics, however, argue that it is Mugabe's mismanagement that has led to the country's economic collapse.

It is unclear whether Mugabe's latest bid to tame runaway inflation will have better results than in the past. Previous efforts to control prices have prompted manufacturers to cut production, resulting in shortages and a bigger black market.