Friday, May 27

Venezuela: slow exit from hyperinflation, but the shopping basket remains light

“They say hyperinflation is over, but in my country it’s still there,” said 75-year-old retiree Humberto Reco while shopping at the popular market in Caracas. He says prices continue to rise in an economy that has become dollarized.

After four years of hyperinflation, Venezuela recorded a cumulative inflation of 686.4% in 2021, with a monthly rate that has never exceeded 50%, the limit of some economists to speak of hyperinflation according to the reference in the estate, Phillip Cagan, who died in 2012.

“According to Cagan’s numbers, we are coming out of hyperinflation. According to the theories of (Carmen) Reinhart and (Kenneth) Rogoff (American economists, editor’s note) we are not there yet. But, it is far from it, “explains the professor of economics at the Metropolitan University Hermes Perez.

According to figures from the Central Bank of Venezuela, the price index increased by 46.6% in January and 33.8% in February 2021, but “only” by 7.6% in December. The trend is therefore for a slowdown in increases.

Hyperfinflation started in 2017 with 862% then exploded with… 130,000% in 2018, then just under 10,000% in 2019 and 3,000% in 2020.

Humberto Reco “does not feel the improvements” of the indicators but suffers from the permanent increase in prices.

“It remains the highest (inflation) figure in the world”, underlines Hermes Perez, who specifies that Venezuela is the only country in Latin America with three-digit inflation.

To survive against this hyperinflation, Venezuelans have started to use the dollar. And, this dollarization of the economy, with less and less use of the Bolivar, has slowed down inflation.

The socialist-inspired government loosened ballast on the dollar, authorizing the circulation of the greenback, the symbol of reviled American imperialism.

It also made efforts to reduce the budget deficit or to make exchange rates more flexible in 2018, which made it possible to virtually eliminate the gap between the official rate and the black rate.

However, deeper reforms are needed, say most experts. Mr. Perez, who has notably been in charge of the exchange office of the Central Bank of Venezuela (BCV), underlines that the BCV must stop issuing money to finance the public oil giant Petroleos de Venezuela (PDVSA) in full restructuring after a drop in oil production.

– “Harder” life –

Several experts estimate that Venezuela could end 2022 with inflation between 120% and 300%, which would be an improvement but would still remain very high.

But for the individual, these macro-economic data seem out of reality. Reco points out that price inflation also affects dollar prices.

“People say that every day that passes life is harder and harder. + I say no! + Every minute it’s harder with a capital D +”, jokes Manuel Quijada, a 67-year-old vegetable seller, saying that he must readjust his prices upwards every week.

According to several witnesses, prices are even increasing every day in some markets.

The economist and director of the Ecoanalitica consultancy, Asdrubal Oliveros, believes that Venezuela is registering price increases in dollars above international standards.

According to his studies, the cost of foreign exchange increased by 40% in 2021, compared to 2020.

Despite the difficulties, Marina Dusei, a 62-year-old retiree, explains that the situation has improved over the past six months with the dollar remaining in a range of 4 to 5 bolivares, whereas in the past the bolivar could plummet in a few time.

She says it is now easier to organize your budget and make forecasts. But like many inhabitants of this oil country, the unprecedented crisis, which has caused a drop in purchasing power and GDP per capita, now places the country at the same level as Haiti.

“We no longer go out to buy what we like but what we need”, she says, with the hope “that things will continue to improve”.

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