Venezuela comes out of hyperinflation but the pocket does not feel change

“Hyperinflation is over, but it will have been at home,” says Humberto Reco in a popular market in Caracas, not expecting prices to stop rising out of control as they have in the last four years.

This 75-year-old pensioner resents in his thin body that Venezuela continues to be the country with the highest inflation in the world.

In 2021, the index closed at 686.4%, according to the Central Bank of Venezuela (BCV): less than 50% per month, which, according to the traditional concept, closes a hyperinflationary cycle that began in 2017.

But Reco believes more in prices than in indicators. “In general, I don’t really see any improvements,” he reaffirms in the halls of the Chacao municipal market.

Venezuela closed 2017 with an inflation of 862%, which shot up a year later to 130,000%. In 2019 it was 9,585% and in 2020 almost 3,000%.

According to the traditional concept of the American Philip Cagan, from 1956, Venezuela comes out of hyperinflation because it registered a monthly figure below 50% for 12 months.

However, according to the vision of the American economists Carmen Reinhart and Kenneth Rogoff, from 2011, there would still be “a little” missing because their parameter is that of an annualized rate below 500%, explains the economist and professor at the Metropolitan University Hermes Perez.

“It is still the highest figure in the world,” insists the expert. “If we take the inflation of 2021, if we compare it with Latin America”, with figures that do not exceed two digits, “it is still by far… the highest”.

The de facto dollarization that displaced the devalued local bolivar, and which is the product of hyperinflation itself, contributed to the drop in the indicator. Also the reduction of the fiscal deficit and the stability of the exchange rate after the relaxation in 2018 of the strict controls, but economists agree that deeper reforms are needed to see more progress.

Pérez, who was head of the BCV’s exchange desk, points out that the entity must stop issuing money to finance the state-owned Petróleos de Venezuela (PDVSA), which has been going through precarious conditions for years.

Analysts estimate that Venezuela may end 2022 with inflation between 120% and 300%.

“Inflation in dollars”

The slowdown is not palpable for the common citizen. Reco even complains that “not even” the little he has in hard currency is enough for him. He talks about “inflation in dollars”.

The economist and director of the Ecoanalítica consultancy, Asdrúbal Oliveros, estimates that Venezuela registers price increases in dollars above international standards.

The firm ensures that foreign exchange costs rose 40% in 2021, compared to 2020.

“People say that every day things are tighter, I say: ‘no, every minute, [está] rudo… with a capital R”, says Manuel Quijada, a 67-year-old vegetable seller, who says he raises his prices weekly.

Some in the Chacao market say they upload them every day; others, depending on the season. The hike varies from post to post.

In spite of everything, Marina Dusei (62) feels that she can organize her budget better, especially with the stability that has maintained the value of the dollar, between 4.5 and 5 bolívares, in the last six months.

Previously it could be fired in a matter of hours.

“We no longer go out to buy what we like, but what we need,” says this woman, who assures that her income is insufficient for the purchase.

In any case, he sees the situation a little better than three years ago, when in the midst of hyperinflation, shortages were rampant. “I think we can continue to improve,” he says optimistically.