The press statement issued by the Banco Central de Venezuela (BCV, the Central Bank) accompanying the release of January inflation data stated that inflationary trends were slowing.
However, the data showed that consumer prices rose by 3.3% month on month in January, up from 2.2% in December. On an annual basis, inflation reached 56.3%, marginally higher than December’s result.
The Central Bank’s press releases are becoming increasingly politicised, indicating the domination of the executive branch over the monetary authority. The opening two sentences of the January inflation release stated that the government’s “economic war” against “speculators” had eased the rise in consumer prices and problems with shortages of basic goods. This refers to the government’s decision prior to the December 8th local elections to seize control of a number of retail chains accused of raising prices too aggressively. Yet the data tell a very different story, with the pace of monthly and annual inflation actually accelerating, and the Central Bank’s own scarcity index (which measures the percentage of goods that are unavailable in shops) reaching an all-time high of 28%.
The government believes that stepping up threats against private businesses will reduce inflation and ease problems with shortages. In early February, the president, Nicolás Maduro, stated that he was prepared to wage “total economic revolution” in order to ensure a continued supply of consumer goods, even if it meant that the authorities would have to expropriate private firms in order to do so.
These statements confirm a complete lack of understanding about the problems causing shortages and driving inflation. Retailers have put up consumer prices because their overheads have risen, mainly reflecting a sharp increase in import costs. With the closure of the official exchange agency in late 2013, businesses no longer have access to US dollars at the fixed rate of BsF6.3:US$1. In theory, this forces the private sector to purchase dollars at a rate of BsF11.4:US$1 through an auction system known as SICAD. However, auctions-which were supposed to be held weekly-have been sporadic, forcing some to resort to the black market for US dollars (where the exchange rate is much weaker).
Impact on the forecast
The tone of the Central Bank’s press release and the government’s reaction to January’s inflation data reinforces our current forecast that official policy will fail to reduce inflation. We continue to expect it to rise further in 2014.
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