Venezuelan Inflation Slows to Match 3-Year Low on Government Food Policies

Venezuela’s monthly inflation slowed in September, matching a three-year low, as government polices to control food prices pushed the costs of staples down.

Consumer prices rose 1.3 percent in September from August, according to the central bank’s benchmark Caracas price index published today, lower than the 1.8 percent median forecast of seven economists surveyed by Bloomberg. Food prices fell 0.1 percent in September from a month earlier, down from a monthly increase of 12.5 percent in April.

The government’s increasing role in both food production and distribution and the guarantee of dollars to the food sector for imports has ensured a slowdown in inflation, Juan Pablo Fuentes, Latin American economist at Moody’s Analytics, said in a phone interview from Philadelphia. As purchasing power increases with the recovery of the economy, this strategy may only work in the short term, he said.

“We haven’t seen food inflation at this level since 2007 and that explains the deceleration of prices in Venezuela,” Fuentes said. “Once the economy begins to grow again at the end of the year, the pressure on prices will increase and it will not be possible to record inflation near 1 percent.”

Monthly inflation as measured by the Caracas price index last rose less than 1.3 percent in August 2007 and has come in at that level in September 2007 and again last December.

Focus on Food

Venezulean President Hugo Chavez has nationalized assets from Cargill Inc, Gruma SAB and French retailer Casino Guichard Perrachon SA in a bid to control production and distribution chains. Today he confirmed the “forced acquisition” of the country’s leading farm-supply business, Agroislena C.A. Sucesora de Enrique Fraga Afonso.

Venezuela, which imports around 70 percent of its food, has guaranteed the supply of dollars to the food sector through its currency exchange commission, Asdrubal Oliveros, director of Caracas-based financial consulting firm Ecoanalitica said in a phone interview.

“The sector that’s received the greatest assignation of foreign currency has been food,” he said. “The government wants to control price increases in these products because it understands it is key to reducing inflation.”

Venezuela’s economy, the only one in Latin America still in recession, shrank less than forecast in the three months through June as the oil-exporting nation showed the first signs of recovering from a five-quarter contraction.

Monthly inflation as measured by the central bank’s national consumer price index, which tracks prices across the country, was 1.1 percent in September, the bank said. Annual inflation was 27.9 percent.

To contact the reporters on this story: Charlie Devereux in Caracas at cdevereux3@bloomberg.net. Corina Rodriguez Pons in Caracas at crpons@bloomberg.net

To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net

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