Venezuela Inflation Hits 16-Year High as Shortages Rise

Venezuela’s annual inflation rate rose more than expected to 54.3 percent last month, the fastest pace in as many as 16 years, as shoppers scrambled for scarce goods ahead of Christmas festivities.

October inflation compares with an annualized 49.4 percent the month earlier and the 52 percent median estimate of three analysts surveyed by Bloomberg. Prices rose 5.1 percent in the month, the central bank said today.

Currency controls have crimped imports in a country that gets about 70 percent of its goods from abroad, pushing up the cost of products that make it into the country. Price increases in the capital, Caracas, are running at the fastest pace since 1997, two years before former President Hugo Chavez came to power.

“This is the first year where the scarcity rate has persistently remained around 20 percent,” Tamara Herrera, the chief economist at Caracas-based financial research firm Sintesis Financiera, said today in a telephone interview. “It speaks to the profound problems that surround the supply of foreign currency, the domestic production of goods and distortions of prices.”

Christmas Imports

To combat shortages, President Nicolas Maduro started weekly currency auctions last month, giving companies a chance to buy almost $400 million to import bicycles, whiskey, toys, wrapping paper and festive food.

“All the dollars that our fatherland needs until December 31 are guaranteed,” Maduro said on state television Oct. 10. “We are going to have a happy Christmas.”

Venezuela will spend $2.5 billion to buy 400 tons of food through March 2014 to fight shortages, oil minister and economy vice president Rafael Ramirez said today in Maracaibo.

Venezuela’s scarcity index, which measures the amount of goods out of stock at any given time, reached 22.4 percent in October, the highest level since January 2008, the central bank said. Food prices rose 5.6 percent in October, housing services were up 5.1 percent, restaurants and hotels prices increased 6.2 percent, and alcohol and tobacco gained 8.6 percent.

Currency Controls

Maduro said yesterday that the country would increase currency and price regulations with the creation of an agency to manage foreign exchange and imports, attributing rising inflation and a decline in the bolivar on the black market to an “economic war” being waged by political opponents.

Venezuela, which devalued the bolivar by 32 percent in February to 6.3 per dollar, has been unable to arrest the decline of the bolivar on the black market, where companies and individuals unable to access the official rate pay around 59 bolivars per dollar.

The country has no plans for a new devaluation and will not remove currency controls, Ramirez said today. Currency auctions on an alternative system known as Sicad that sells dollars at an undisclosed exchange rate will continue in 2014, he said.

“If the government has success with its import and price control plans, it’s possible that inflation could slow down in the next couple of months,” Herrera said. “It will be difficult to sustain, though, as the measures will not normalize the economy.”

‘Economic War’

Maduro, who was elected in April after Chavez’s death in March, said yesterday that 2013 has been a “complex and difficult year.” The “fictitious” black market dollar is used to “perturb” the economy as part of the economic war and “psychological disturbance,” he said.

The country’s economic institutions have been “exhausted” and cannot help to construct socialism, he said, adding that the country would soon start a nationwide operation against price speculation and hoarding, using part of the armed forces. He said the government would set “fair” maximum prices on all products.

“If I have to confiscate full warehouses to bring products to the people and sell them at fair prices, I’ll do it,” Maduro

said today on state television.

The yield on the Venezuelan government’s benchmark 9.25 percent dollar bonds due in 2027 rose 58 basis points, or 0.58 percentage point, to 12.8 percent today in New York, according to data compiled by Bloomberg. The price fell 3.12 cents to 77.00 cents, the biggest decline on a closing basis since Oct. 2.

“The measures announced yesterday are not going to resolve scarcity,” Luis Vicente Leon, president of Caracas-based polling firm Datanalisis, said today in interview. “The longer you wait to take decisions, the cost of ending the economic crisis in the first quarter next year become greater.”

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