Venezuelan Central Bank Reports “Significant Deceleration” in Inflation

Mérida, 14th March 2014 (Venezuelanalysis.com) – Venezuela’s central bank has reported a slowdown in inflation, while vice-president of the economy Rafael Ramirez has claimed the country’s latest currency exchange system has already decreased the value of the dollar on the black market – before it’s even operational.

Inflation rose by 2.4% in February, according to figures released today by the Central Bank of Venezuela (BCV).

The rate is down from the 3.3% reported for January. According to the BCV’s report, February’s monthly inflation was the “second lowest rate in the last twelve months”. December’s inflation was 2.2, November’s 4.8, and October’s 5.1%.

However the annual inflation rate is now measured at 57.3%, up a percentage point from January.  

“These results are seen in a context in which economic activity was impacted by disturbing events resulting from the economic war, with consequences for the distribution of consumer products,” the BCV stated.

In particular the bank attributed the deceleration to a slowdown in the inflation of food and non-alcoholic beverages, which fell from 4.3% in January to 1.7% in February.

Figures on scarcity were absent from the report, despite ongoing shortages of consumer products. Previously stable goods such as coffee and gas have reportedly become scarce in some parts of the country. President Nicolas Maduro blames shortages on an “economic war”, while business leaders have accused the government of failing to provide enough foreign currency to satisfy import demands. In some areas gas deliveries have also been impeded by the street barricades erected by militant opposition activists.

The government’s latest attempt to ease access to foreign currency was expected to begin operations this week, after its implementation was held up last month to due legislative restrictions. However, the long anticipated Complimentary System of Foreign Currency Acquirement II (Sicad II) has again been delayed.

When trading didn’t begin on Tuesday as expected, Ramirez announced that the system wouldn’t be put into operation until the government has confidence it won’t create “distortions”.

“They are doing testing, and we must ensure that there is no situation or failure that would send the wrong message,” Ramirez stated.

According to Ramirez, Sicad II will start running “when we are sure that it will function optimally”, suggesting that could be possible next week.

Based on a long shelved bond swap system known in Venezuela as the “permuta”, Sicad II will allow both public and private companies to trade foreign currency at rates higher than the official peg.

Earlier this year Ramirez stated that Sicad II will sell around US$30 million every day. However, earlier this week he stated the system will “sell whatever it takes” to keep businesses from resorting to the black market.

“How much and how often…is something that will be determined by the behaviour of the market,” he stated.

The black market value of the bolivar has fallen from around Bs20 to the dollar at this time last year, to around Bs80 today. The official rate of the bolivar is 6.30 to the dollar.

However, according to Ramirez, Sicad II has already impacted the black market. This month the bolivar regained some value on the street, after hitting a low of Bs90 to the dollar. Ramirez credited the rebound to anticipation of Sicad II’s inception.

Venezuela’s largest business group, Fedecamaras has expressed support for Sicad II. On Thursday, Fedecamaras head Jorge Roig described the system as heading “in the right direction”.

More Private Sector Cutbacks

However, on the heels of Sicad II’s delay, Venezuela’s third largest foreign airline announced it would further scale back services in the country.

The Colombian based Avianca has revealed it will cut 73% percent of flights servicing Venezuela, including routes to Peru, Costa Rica and Colombia.

Earlier this year Avianca President Fabio Villegas blamed difficulties with Venezuela’s foreign exchange system for cutbacks. The airline reportedly has close to US$300 million in Venezuela.

According to the International Air Transport Association, carriers have around US$3.7 billion locked in the country.

Another foreign company, Chrysler, has also announced it will start scaling back operations in Venezuela next week. The car manufacturer claimed that it’s struggling to import assembly materials.

On Thursday, Ramirez again called for the private sector to work more closely with the government. He also announced that the Maduro administration had committed to a 56 point plan to improve the economy, during a speech at a peace conference in Anzoategui.

According to Ramirez, the plan emerged from proposals made by private businesses and workers’ unions.

“We will work with all sectors… but starting from a principle of absolute adherence to the constitution, the rules of the…country, respect the people, peace and the rejection of the real terrorism we have seen,” he stated.