Hyperinflation has made food expensive to produce and buy
Speaking to a UK newspaper, Christopher Dell predicted that inflation will leap to 1.5m% by the end of the year.
He said political discontent at Mr Mugabe's "disastrous economic policies" meant Zimbabwe was "committing regime change upon itself".
Zimbabwe has 80% unemployment and independent economists say inflation is running at 11,000% per year.
On Thursday, the value of the Zimbabwean dollar plummeted with black market exchange rates reaching 300,000 Zimbabwean dollars to one US dollar. The official rate is 15,000 to one.
'Lost faith'
"I believe inflation will hit 1.5m% by the end of 2007, if not before," Mr Dell told the Guardian newspaper, adding that he believed this was a "modest forecast".
He said prices were going up twice a day and people were turning to bartering rather than using rapidly devaluing cash.
ZIMBABWE CRISIS Inflation: 4,500% (official estimate) Unemployment: 80% 4m need food aid Life expectancy: 37 (men), 34 (women)
Mobiles to beat fuel queues
"It destabilises everything. People have completely lost faith in the currency and that means they have completely lost faith in the government that issues it."
Mr Mugabe, 83, has already made it clear that he wants to stand for re-election but Mr Dell said he thought change would come sooner.
"Things have reached a critical point. I believe the excitement will come in a matter of months, if not weeks. The Mugabe government is reaching end game, it is running out of options."
On Thursday, opposition leader Morgan Tsvangirai made similar predictions of an impending end to Mr Mugabe's rule.
"He's got an economy that's down on its knees, he knows he cannot sustain it," Mr Tsvangirai told the Associated Press.
"He knows he has an army that is jittery. He knows all his popular pillars of support are up against him."
Inflation in Zimbabwe is now the world's highest at 11,000 percent and rising. Reports first came in that the value of the Zimbabwean dollar had reached an all-time low two days ago, at which point the official inflation rate was 4,500 percent. Even though this was already high enough to be the world's highest, to make matters worse, independent financial sources estimated the figure to be closer to 9,000 percent. Yesterday, reports came in that inflation had risen to 11,000 percent.

US Ambassador to Zimbabwe Christopher Dell is reported to have told ''The Guardian'' newspaper over the telephone that he believes inflation "will hit 1.5 million percent by the end of 2007, if not before," adding that he "know(s) that sounds stratospheric but, looking at the way things are going, I believe it is a modest forecast." Dell went on to predict that president Robert Mugabe would be forced out of power by the hyperinflation, a prediction also made by opposition leader Morgan Tsvangirai.


Dell added that he felt Mugabe would be out in "a matter of months, if not weeks" and justified his comments with the rationale that "It destabilises everything. People have completely lost faith in the currency and that means they have completely lost faith in the government that issues it." Tsvangirai comments to the Associated Press were that: "He's got an economy that's down on its knees, he knows he cannot sustain it." Despite this, Mugabe has expressed intentions to stand for the next election.

Exchange rates for the U.S. dollar have reached an official 15,000-1, but on the black market, according to one anonymous illicit money trader, deals have reached 140,000-1 in cash, with a shortage of bank notes creating a 200,000-1 premium on bank transfers and large overseas deals reaching as much as 300,000-1. Meanwhile, in the course of a week the black market exchange for the UK£ has risen from 160,000-1 to 400,000-1. Despite these increases, Mugabe remains adamant that his currency should not be devalued, and is keeping official exchange rates fixed, with the rate for the US$ fixed at 250-1.

The dealer said that added uncertainty had arisen from talks held between the current government and the opposition party, the Movement for Democratic Change. The official press services published propaganda describing the talks as the opposition negotiating "in bad faith" for its own political gain.

Shops are running out of goods due to the huge cost of imported goods and the lack of local ones due to the closure of inflation-crippled factories. "If it goes on like this, we'll have nothing to sell, we'll have no staff and we'll have to close down completely," said one store manager, who was unnamed because he feared retaliation by the state for being a "prophet of doom". Other shops have been closing down temporarily to change their prices.

Hyperinflation is also worsening already crippling poverty in Zimbabwe, with people unable to afford the necessary goods for survival. State regulations limit bank money withdrawals to Z$1.5 million per day, hopelessly inadequate given current currency values. One person's pension company informed him he would no longer receive statements because the value of his pension fund had decreased to less than that of a postage stamp.

The state daily ''Chronicle'' in the second city of Bulawayo reported that Western countries were planning to become involved with the situation upon Mugabe's departure with a rescue package valued at US$3 billion. Western officials have confirmed that budget proposals exist relating to, according to the ''Associated Press'', "food support, public services reform and the rebuilding of agriculture and general infrastructure over five years in a new political landscape led by reformist Zimbabwean politicians." However, state media again ran propaganda-based stories, saying that Western powers and their close political friends, who state media call the "Fishmongers Group", were "working overtime to destroy the economy, mutilate the Zimbabwe dollar, foment civil unrest and then dangle a rescue package to win the support of gullible politicians."