July 3 (Bloomberg) -- Venezuela’s annual inflation rate fell for a seventh consecutive month in June as the government stepped up imports as part of an expansion in public spending ahead of elections in October.
Inflation eased to 21.3 percent, the slowest pace since the creation of the national price index in 2008, trailing the 21.8 percent median estimate of five economists in a Bloomberg survey. Consumer prices rose 1.4 percent in June from May, the central bank said today in an e-mailed statement.
President Hugo Chavez is expanding public spending as he seeks to extend his 13 years in power at elections on Oct. 7. Imports rose 48 percent in the first quarter, according to the central bank, allowing the government to stock subsidized state-run food markets with cheap goods ahead of the vote, said Francisco Rodriguez, a New York-based economist at Bank of America Merrill Lynch.
“The government is bringing in goods that form a large part of CPI and this is essentially allowing them to keep down the increase in inflation,” Rodriguez said in a phone interview from New York. The policy “could go on for quite a long time but sooner or later Venezuela is going to run out of dollars.”
Transport, restaurants and hotels, and health-care pushed consumer prices higher in June, rising 4 percent, 2.7 percent and 1.6 percent respectively, the bank said today. Food, which has the most weight on prices in the inflation index, gained 0.8 percent.
Chavez said June 29 that the slowdown in inflation is a result of his policies of promoting domestic production while controlling prices of essential goods.
Consumer goods companies including Procter & Gamble Co, Colgate-Palmolive Co. and Johnson & Johnson have had to reduce prices by as much as 25 percent on products such as toothpaste, toilet paper and bleach after Chavez installed price caps April 1 to slow inflation. The price caps are necessary to combat “capitalist speculation,” Chavez says.
Venezuela has the fastest inflation after Belarus and Iran of 96 economies tracked by Bloomberg.
“This indicates that inflation is continuing to slow down,” Chavez, who insists he will overcome his battle with cancer to contest the October election, said on state television last week. “This is an important gain, a product of our economic policies.”
Procter & Gamble, the world’s largest consumer-products company, estimated the price controls had a negative impact of $0.03 per share in the first quarter, Chief Financial Officer Jon Moeller said in a an April 27 earnings teleconference. Oakland, California-based Clorox Co. said about 25 percent of a 49 percent decline in international segment profitability is attributable to price controls in Venezuela.
In January, Chavez threatened to nationalize companies that fail to comply with the price controls. The government already regulates the price of hundreds of basic food goods.
The central bank’s scarcity index, which measures the availability of goods in stores, fell to 11.7 percent in June from 14.4 percent in May.
While the government may be able to keep importing to maintain lower prices, the strategy, coupled with a drop in crude oil prices, will require the government to devalue the bolivar after the elections, Rodriguez said.
“There’s quite some space for them to run down their assets and continue to have a high growth rate of imports, but there’s a limit which gets nearer the lower that oil prices are,” he said. “This picture ends in a substantial devaluation and macro adjustment, but that’s something that will happen after the elections.”
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