Arab Today, arab today venezuela faces hyperinflation threat
Last Updated : GMT 06:09:44
Arab Today, arab today
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Venezuela faces hyperinflation threat

Arab Today, arab today

Arab Today, arab today Venezuela faces hyperinflation threat

People queue outside a store
Caracas - AFP

Gloomily watching their money shrink in value, Venezuelans don't need government statistics to tell them what they already know: their country is facing the looming risk of hyperinflation.
Breaking its own regulations, the Venezuelan central bank has stopped publishing the official inflation rate, which stood at 63.4 percent at the end of August.
Since then, prices have only continued to rise, as the South American oil giant feels the pinch of falling crude prices and struggles to import the food and medicine it largely buys abroad.
It is difficult to evaluate just how much value the bolivar has lost in recent months.
But one quick measure is the Extra Value menu at McDonald's: In September 2013, a Big Mac combo meal cost 125 bolivars; by November 2014, the price had nearly doubled, to 245 bolivars.
The US fast food giant is, paradoxically, a good place to track Venezuela's inflationary spiral.
For one thing, it remains popular with Venezuelans, despite anti-"Yankee-lover" diatribes by President Nicolas Maduro, the political heir to late socialist firebrand Hugo Chavez.
For another, it is one of the few food businesses not to have been hit by the shortages crippling the Venezuelan economy.
"We raise our prices practically every month," a McDonald's employee told AFP, speaking on condition of anonymity.
"We've never raised them as much as this year."
- Black-market dollars -
Exacerbating matters, there has been a shortage of foreign currency for almost two years now.
Coupled with declining domestic production, that has caused chronic shortages of a host of basic goods including cooking oil, milk, flour, toilet paper, deodorant, razors, shampoo and detergent.
Maduro's government has tried to bolster buying power by raising the minimum wage three times last year and three times this year.
But the increase -- 64 percent in 2014 -- only feeds the inflationary beast.
Families now rush to buy all they can at the start of the month in a race against prices.
The only refuge for their money is the black-market dollar.
But Venezuela, which gets 96 percent of its foreign currency from oil sales, has also watched its oil price fall by a third since July.
That means fewer dollars, putting pressure on the black-market exchange rate, which rose from 100 bolivars to the dollar to 150 last month -- up from 40 a year ago.
The official exchange rate meanwhile remains at 6.30 bolivars, the level Maduro vowed to keep it at a year ago.
"The deterioration of the currency outlook because of falling oil prices traditionally puts pressure on the dollar. That makes the government slash access to foreign currency (at the official rate) and forces people onto the black market," said economist Pedro Palma.
"That generates enormous uncertainty" and further fuels inflation, he told AFP.
- Shortage of stats -
There is no set numerical definition of hyperinflation, but economists often consider it to be a monthly inflation rate of more than 50 percent.
Venezuela is not at that threshold, but there are warning signs.
The monthly inflation rate likely stands at around five percent now, according to Henkel Garcia, head of consulting firm Econometrica.
"In November, people's salaries bought approximately 13 percent fewer products than 12 months ago," he told AFP.
"The threat of hyperinflation risks becoming a reality of the monetary disorder continues or gets worse, if there's an abrupt fall in supply and if there's a lack of confidence in the currency."
According to the former research chief at the central bank, Jose Guerra, directors there are considering a plan to stop publishing inflation data altogether and only release it on request after vetting petitioners' applications.
The government has meanwhile responded to the price pressures by printing more bolivars.
The money supply will likely expand 55 percent this year, consulting firms say.
That is less than the past two years.
But with the president's approval rating hovering around 30 percent, the government looks likely to crank up the printing presses again next year, when Maduro's United Socialist Party of Venezuela faces legislative elections.

 

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