Venezuela is Approaching Hyperinflation Levels

Venezuelans suffer Hourly collapse of its currency, the runaway price increases, which primarily affects families trying to buy food and medicine, about hyperinflation the country with the world’s largest oil reserves.

Although the Central Bank violated its rules and no reports of inflation for three months (the last data was published in late August, 63.4% annualized) Venezuelans feel every day how the Bolivar becomes smoke in their pockets and is exchanged for fewer products, in an economy dependent on imports. The popular Big Mac from McDonalds reflects the inflationary spiral: in September 2013 cost 125 bolivars with fries and soda, while in November 2014 almost doubled its price to 245 bolivars.

Choosing a fast food dish to clarify the price escalation has several causes: it is popular in the country, under protest to the Bolivarian Revolution who knew rush against nicknamed “pitiyanquis”. But also, so far has not suffered shortages, while most basic consumer products (fresh or processed) … sometimes disappear for months.

An employee of the fast food chain, who requested anonymity, “almost every month we change the menu and the prices went up. This year is when most have gone”.

The collapse of purchasing power

“In November, the salary buys about 13% less products than 12 months ago,” said Henkel Garcia, director of the firm Econometric. In his view, inflation between September and December may be around 5% every 30 days, a calculation in line with many other economists.

Along with price increases prolonged drought exchange which lasted almost two years has influenced a fall in domestic production, which together with the controls in the economy has led to a shortage of at least one in four commodities like edible oil, milk, cornmeal, toilet paper, deodorant, razors, shampoo or detergent.

The inflationary development has prompted the government of Nicolas Maduro to increase the minimum wage three times in 2013 and three times in 2014, to round 64% this year.

Stampede dollar

With high inflation and interest rates seven times lower bank deposits, Venezuelans quickly rush to buy everything they can in a race against prices. And the finished products –in part by those purchases desaforadas– the only refuge is the parallel dollar.

But besides movements of panic or speculation, affects the lower dollar exchange allocation as a result of exchange controls. This adds to Venezuela-which gets 96% of its foreign exchange from petroleras– has seen sales fall one third the price of its oil in the second half of 2014, which undermines the expectation of currency in a country matters, among other products, more than half of its food and medicine.

The pressure is so strong that in the illegal market in a year the dollar went from 40 to 150 bolivars and only in the last month climbed from 100 to 150. At the same time the official rate of dollar is nailed-as promised a year ago President Nicolas Maduro at 6.30 bolivars.

“The deterioration of the exchange rate expectations, by falling oil prices, traditionally results in pressure on the dollar. This forces the government to reduce access to foreign exchange (preferential) and people to go to the parallel market,” explains economist Pedro Palma.

“This creates a very large uncertainty” and being fixed cost recovery basis at black market, which fed inflation, he added.

Official Statistics: Another missing good

According to José Guerra, former manager of Research of the Central Bank, the directory of the issuer manages a proposal to cancel the public release of inflation data and only eventually deliver “by direct requests” and after analyzing the relevance of the order.

Pedro Palma warns that hide the statistical increases confidence in the currency and hyperinflation fed risk. For Henkel García “stage of hyperinflation gaining space if the monetary disorder continues or is amplified if there is a sudden drop in the supply available and if there is distrust of the currency.”

Although a slower pace than in 2012 and 2013, the money supply has continued to expand and, according to local consultants, could close the year with an increase of 55%. But experts predict even overheating banknote printing in 2015, when Maduro whose popularity has fallen to 30% – will face elections.