Venezuela’s Inflation Rate Hit 19.9%

hugo chavez, venezuela

* Price controls helped keep inflation in check

* Currency devaluation seen spurring inflation in 2013

CARACAS, Dec 29 (Reuters) – Venezuelan inflation reached 19.9 per cent in 2012, the central bank said in a preliminary estimate on Saturday, beating its official target thanks to strict price controls that business leaders say are unsustainable in the long term.

The government of President Hugo Chavez has capped prices for a wide range of consumer goods, helping contain inflation that has traditionally been the highest in Latin America. The 2012 target had been between 22 and 25 per cent.

But inflation is seen accelerating in 2013 because Venezuela is expected to devalue the bolivar currency after heavy campaign spending this year that helped ensure Chavez’s re-election.

Devaluing eases fiscal pressure on the government by providing more bolivars for each dollar of crude exports, but also pushes up the cost of importing basic consumer goods that are not produced in the oil-dependent country.

In late 2011, when prices rose 27.6 per cent, the government began extended a system of controls that now regulate prices of products ranging from deodorant to meat while fixing profit margins.

This helped keep prices in check in an election year despite heavy government spending on welfare programs ranging from construction of homes for the poor to monthly cash stipends for single mothers.

But business leaders say the controls have kept prices artificially low, and that inflation is likely to bounce back.

Authorities on Thursday released preliminary estimates showing the country’s economy grew 5.5 per cent in 2012, with the construction sector among the fastest-growing thanks to a state homebuilding program.

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