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Venezuela, at risk of falling back into hyperinflation?

Venezuela, at risk of falling back into hyperinflation?

The rate hikes inflation that Venezuela has registered in the last five months, until the end of 2022, at 305.7% year-on-year, according to independent estimates, arouses fear of falling back into hyperinflationa process that went through four years until the end of 2021 and that impoverished millions of citizens.

The nation accumulates five consecutive months with double-digit increases, indicated the Venezuelan Finance Observatory (OVF)an independent entity made up of specialists, according to which inflation in August was 17.3%, in September 11.5%, in October 14.5%, in November 21.9% and in December 37.2%, the highest in recent 22 months.

It is for this reason that the OVF, whose statistics are used as a reference given the delays in the publication of official figures, warned that the recent “pronounced accelerations” of inflation “could place the economy in danger of a hyperinflationary outbreak, which is gaining strength with the sustained devaluation of the bolivar,” the local currency.

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The cause

the economist Litsay Guerrero explained to EFE that “if the conditions continue” that drive the acceleration of price increases and inflation once again reaches 50% per month -the basis for a country to enter hyperinflation-, Venezuela “will have this” problem “again, with the unfortunate consequences for the most vulnerable sectors.”

Among these conditions, the also researcher of the Center for the Dissemination of Economic Knowledge (Cedice) highlighted the increase that the official price of the dollar has registered, especially from the second semester of 2022, when it started at 5.55 bolivars and closed at 17.48, an increase of 215% that had an impact on goods and services, as these were calculated in dollars as a reference.

According to experts, including Guerrero, the Government of Nicolas Maduro between July and December, it relaxed its plan to control inflation through the reduction of public spending, since it paid various bonuses to workers, who have demanded a salary increase in multiple protests, equivalent to about US$ 6 a month .

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The payment of these “employee bonuses” increased the circulation of bolivars, necessary to buy dollars, which caused an increase in the price of the currency and, therefore, an increase in the cost of goods and services.

According to Cedice, inflation reached 55% in December in three of the country’s main cities, including Caracas, for which he warned that the nation “could once again fall into a process of hyperinflation.”

The upward trend in the price of the dollar has continued so far in 2023, reaching 19.45 bolivars this Friday, an increase of almost 11% in the first 13 days of the year.

It is still “too early”

For his part, the economist Luis Arturo Barcenashead of the firm Ecoanalytictold EFE that it is “Too early to talk about hyperinflation.”

He assured that, although “In monthly terms, the growth rate is approaching the 50% range, a price environment like the one experienced in 2018 is not yet evident”a year that closed with an inflation rate of 130,060%, according to the Central Bank (BCV).

At that time, he pointed out, there were registered “price growth in days very similar to what was seen in other countries in weeks or even months”as the local currency plummeted in value, giving ground to the dollar, which the public unofficially embraced in an attempt to protect their income.

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For Barcenas, “It is difficult, for now, for Venezuela to enter an environment of hyperinflation” because dollarization “It has allowed, in part, that the loss of the value of the bolivar is not as dizzying as it was before”well the prices “they inherit the stability of the dollar as a reserve currency.”

In addition, he indicated that the Government has a “explicit interest” in avoiding exacerbated increases in prices, especially in view of the upcoming presidential elections, scheduled for 2024, so it is foreseeable that, if necessary, it will take measures, such as further restricting its spending or allowing banks to finance in foreign currency to lower the issuance of bolivars.

And even if it is not in hyperinflation, the country is going through “a difficult moment in terms of prices”with a “chronic inflation” that Ecoanalítica estimates closed 2022 close to 320%, something that “No country in the world has it.” and makes the “Venezuelan continues to have problems accessing essential goods and services,” added the expert.

Source: EFE.

Source: Gestion

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