Venezuela’s Forced Price Cuts Damp World’s Fastest InflationAnatoly Kurmanaev and Corina Pons
Venezuela’s monthly inflation rate fell in November and December after President Nicolas Maduro ordered shops to cut prices on everything from refrigerators to Christmas lights.
Consumer prices rose 2.2 percent this month and 4.8 percent in November, compared with 5.1 percent in October, the central bank said in a report posted on its website. The median estimate of seven analysts surveyed by Bloomberg was for prices to rise 4 percent in November. The central bank didn’t provide the annual inflation figure or an updated scarcity index.
The president has blamed shortages and inflation on the “parasitic bourgeoisie” and last month ordered more than a 1,000 businesses to cut prices. The November rate was posted 20 days late and came minutes before Maduro told reporters political opponents were helping to fuel inflation and food sellers were overcharging by as much as 3,000 percent.
“The report has high ideological content and opens up the possibility for changes in the measurement of inflation,” Asdrubal Oliveros, director of Caracas-based consulting firm Ecoanalitica, said by phone. “This report omits important technical elements.”
Inflation accelerated to 56.2 percent this year as the economy expanded 1.6 percent, Maduro told reporters today. Last year prices increased 21.3 percent, while the economy grew 5.6 percent.
Industry has blamed currency controls for crimping imports in a country that gets about 70 percent of its goods from abroad. Venezuela has the fastest inflation in the world among 103 economies surveyed by Bloomberg.
Food prices rose 7.5 percent in November, restaurants and hotels 5.9 percent and alcohol and tobacco 5.5 percent, the central bank said today. Caracas inflation for November was 3.7 percent.
To improve dollar distribution to companies, Maduro said he will create a unified exchange system next year which will provide “foreign currency at a fair price for the functioning of the economy.” No further details were provided.
Under a decade-long system of currency controls, the government provides around 95 percent of dollars in the economy to selected companies and individuals at 6.3 bolivars per dollar. The remaining 5 percent is sold through weekly auctions at a higher floating rate, which currently stands at 11.3 bolivars per dollar. The exchange rate on the black market is about 64 per dollar.
Over the past two months, price regulators backed by the military have taken over an electronics chain, a car battery factory, a hardware store and a Smurfit Kappa Group Plc packaging plant as part of a government push to force price cuts.
In a televised address Nov. 23, Maduro said the measures will slow inflation and he asked government statisticians to “go beyond the technicalities and technology” when calculating inflation.
The central bank today said it undertook an “extraordinary operation” in collecting the data.
“Price speculation on goods and services was out of control, which could have produced monthly inflation of close to 6 percent in November,” the bank said. “The data collected was reviewed and businesses were visited again in order to corroborate results.”
The price cuts have improved Maduro’s popularity, enabling his party to win the majority of mayoralities in local elections Dec. 8, according to polling company Datanalisis.
The cost to the economy of forced price cuts will be faster inflation and weaker growth next year, Diego Moya-Ocampos, political risk analyst at IHS Global Insight in London, said in an e-mailed response to questions.
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. Annual inflation in October was the fastest in as many as 16 years, as shoppers searched for scarce goods ahead of Christmas festivities.
“The December slow-down is temporary,” Francisco Rodriguez, chief Andean economist at Bank of America Corp., said about inflation in a telephone interview. “Inflation will continue to accelerate in 2014 if there are no structural changes.” Prices could increase 75 percent in 2014, he said.