Jan. 3 (Bloomberg) -- Alfredo Cohen, who built and owns Venezuela's largest shopping center, is trying to complete a $150 million Caracas office complex. Trouble is, he keeps running out of bricks, pipe and shingles.

``In my 25 years in this business, I've never seen shortages like this,'' Cohen, 46, said in an interview in Caracas. ``There's a scramble for materials that's jacking up prices and adding at least 10 percent to my costs.''

The experience of Cohen's family company, Constructora Sambil, is being repeated throughout South America's fastest- growing economy. Scarce supplies of building materials, cars, food and other goods are imposing costly delays and other efforts to cope, pushing Venezuelan inflation to an annual rate of 17 percent in December, the central bank said yesterday.

Some of the shortages are the result of the very price controls that President Hugo Chavez has imposed to combat inflation, local businesspeople say. ``All price controls, after a few years, become perverse for production,'' said Gustavo Moreno, president of the Venezuelan Agriculture Association. ``If there isn't a periodic price increase to take inflation into account, controls create more problems than they solve.''

The 52-year-old Chavez, who was re-elected to a six-year term on Dec. 3, has used controls to combat inflation since 2003, when he froze the price of basic foods, such as rice and meat, after a two-month national strike.

Setting Prices

Since then, he's capped phone and electricity rates, and most recently, set prices for 45 construction materials after the cost of some products, such as drywall, doubled in 2006, Irwin Perret, president of the Venezuelan Construction Association, said in an interview.

Government-controlled prices account for about half the country's consumer price index. Venezuela's consumer prices climbed 1.8 percent in December from the previous month, after a 1.3 percent gain in November, the central bank said yesterday.

``Chavez favors price and capital controls to keep a lid on prices rather than spend less or raise interest rates,'' said Alberto Ramos, a senior Latin American economist with Goldman Sachs Group Inc. ``We expect Chavez to persist with and possibly deepen these controls.''

At 17 percent, Venezuela's inflation rate was the fastest in Latin America last month. The rate was 15.8 percent in November; as recently as May, it was 10.4 percent.

Missing a Target

The speedup in inflation means the government isn't likely to meet its target of 10 percent to 12 percent this year, said Andreas Faust, an analyst at Banco Mercantil in Caracas. It missed a similar target in 2006.

Chavez boosted government spending 51 percent during the first nine months of 2006 as oil sales jumped to a record for Venezuela, the world's fifth-largest crude oil exporter.

The government price caps are helping to contain the inflation ``demons,'' he said in a Nov. 1 speech in one of the slums in eastern Caracas.

Venezuela has only allowed farmers to raise the price of some foods, such as sugar, once in the last four years, compared with a 103 percent increase in consumer prices during the same period. That means farmers' incomes aren't keeping up with the rising costs of machinery, fertilizers and worker salaries.

To escape the controls and supplement their income, some farmers sell their crops at unregulated street markets for a higher price, Moreno said; others, such as dairy producers, are exacerbating a milk shortage by making more goods whose prices aren't regulated, such as cheeses.

Reluctant to Invest

Meanwhile, companies are reluctant to invest to increase production. Manufacturers, concerned that Chavez will deepen state involvement in the economy, have trimmed spending on new plant and equipment to the point that non-government investment equals no more than 4 percent of gross domestic product, the lowest among Latin America's 10 biggest economies.

Faust said many are reluctant to expand production because of a lack of private-property guarantees from the government. Chavez has seized rural estates and factories the government deems to be unproductive, including some assets of Lorenzo Mendoza, Venezuela's second-wealthiest man., and of H.J. Heinz Co., the world's largest ketchup maker. Foreign investors sold $778 million more in Venezuelan assets than they bought in the first nine months of 2006, according to the central bank; a decade ago, in the same period, they added $5.9 billion more than they disposed of.

``Companies are working three shifts a day,'' the construction group's Perret said. ``But the next decision is to expand capacity, and they're reluctant to do that.''

To contact the reporter on this story: Alex Kennedy in Caracas at Akennedy1@bloomberg.net.

Last Updated: January 2, 2007 23:03 EST