Venezuela Inflation Slows for 10th Month on Election Imports

Venezuela’s inflation slowed for a 10th consecutive month in September as the government maintained price controls and boosted cheap imports ahead of elections last week.

Nationwide annualized inflation slowed to 18 percent from 18.1 percent in August, trailing the 18.3 percent median estimate of five economists in a Bloomberg survey. Prices rose 1.6 percent from the month before, when they gained 1.1 percent.

President Hugo Chavez, who won another six-year term that could extend his rule to 20 years in elections on Oct. 7, has tightened price controls on 19 consumer care products this year while ramping up imports to mitigate shortages, said Alejandro Arreaza, an economist at Barclays Plc in New York.

“The price controls have delayed the adjustment of prices while they’ve tried to control other products by increasing supply,” Arreaza said in a phone interview. “We’re expecting a rebound next year.”

Food costs, which account for 37 percent of the inflation index, gained 1.9 percent in September, the fastest increase since January. Educational materials, restaurants and hotels and alcoholic drinks and tobacco also pushed prices higher, rising 4.4 percent, 1.9 percent and 1.7 percent respectively, the bank said.

The bolivar slid 0.32 percent to a record 12.62 per dollar in the unregulated market today following Chavez’s victory.

Foreign Currency

An increase in foreign currency allocations has allowed the government to ramp up imports and slow price rises. Imports leaped 26.8 percent in the first half of the year, according to the central bank, after the bank-administered currency market known as Sitme increased allocations by 32 percent to $5.16 billion from the same period a year earlier.

Annual inflation fell below 20 percent in July for the first time since the national index was created in December 2008 to replace the Caracas index.

Inflation probably will accelerate after the election as the government devalues the bolivar and reduces imports in order as it looks to narrow the fiscal deficit, Arreaza said. Venezuela will weaken the official rate to 6.2 bolivars per dollar in the first quarter of 2013 from 4.3 at the moment, according to the median estimate of 14 analysts surveyed by Bloomberg.

Ahead of the election, the government boosted spending, raising government wages by 32.25 percent this year. The number of bolivars circulating in the economy has increased 56 percent since August 2011, according to data compiled by Bloomberg.

Devaluation

Consumer prices in the capital Caracas rose 1.9 percent in September, while annual inflation quickened to 19.1 percent from 18.6 percent, the bank said today.

Businesses who cannot buy foreign currency from the government are obtaining it in unregulated trading and pricing in a devaluation, said Boris Segura, a strategist at Nomura Securities International Inc. today.

“If you don’t have access to Cadivi or Sitme, this is affecting your cost structure, the cost of importing,” Segura said in a phone interview, referring to the government currency agency and central bank-administered currency market. “People are already pricing in a devaluation for early next year.”

To contact the reporters on this story: Charlie Devereux in Caracas at cdevereux3@bloomberg.net; Jose Orozco in Caracas at jorozco8@bloomberg.net

To contact the editor responsible for this story: Philip Sanders at psanders@bloomberg.net

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