Venezuelan Inflation Holds Steady at 1.7% in April

Venezuelan Planning and Development Minister Haiman El Troudi announced on Tuesday that inflation closed at 1.7 percent for April, unchanged from the previous month.
Planning and Development Minister Haiman El Troudi (Archive)

Caracas, May 7, 2008 ( – Venezuelan Planning and Development Minister Haiman El Troudi announced on Tuesday that inflation closed at 1.7 percent for April, unchanged from the previous month.

Combined inflation for the first four months of 2008 reached 8.9 percent according to Central Bank report released on Tuesday.

However, despite the increase in consumer prices, Minister El Troudi argued the results showed an overall tendency towards deceleration. Figures from April indicate a 50 per cent decrease in the inter-monthly variation since the beginning of the year he pointed out.

By the close of January inflation reached 3.1 per cent, February registered inflation of 2.1 percent, placing combined inflation at 5.3 percent, with a 1.7 percent increase in March, pushing overall inflation to 7.1 percent and closing at 8.9 percent accumulated inflation in April. The inter-monthly variation from January to February indicated a 41.5 percent increase, from February to March, 25.4 per cent and from March to April, 20.2 percent, the minister explained.

The Central Bank figures showed increases above the national average in April for sectors such as transport (2.8), restaurants and hotels (2.1), health (2.0), food and non-alcoholic beverages (1.8), while rent (1.0) and communications (0.2) registered less than the national average and electricity and gas showed zero inflation.

Sectors that have registered the highest accumulated inflation this year include restaurants and hotels (14.2), transport (12.9), health services (12.5) and alcoholic beverages and tobacco (11.8).

Those sectors that have registered more moderate rates of inflation include electricity and gas (1.4), communication services (1.9) and education (5.4).

Overall accumulated inflation for goods represents an increase of 8.4 percent, while services have appreciated 9.6 percent.

Spurred on by massive public spending programs, which saw 8.4 percent economic growth, in 2007, Venezuela closed the year with the highest inflation rate in Latin America at 22 percent. If the current pace of 8.9 percent continues, the oil-rich nation would see annual inflation reach 26 percent in 2008.

However, Minister El Troudi argued the country is on the tail-end of a late-2007 inflationary spike and predicted that the rate would slow, however he admitted, “We have a great challenge ahead of us.”

El Troudi also contended that the inflationary impact generated by the 30 percent increase in the minimum wage to US$372 (euro240) and for all workers in the public sector decreed by President Hugo Chavez on April 30, would not affect the government’s overall target of 19.5 percent for 2008.

In order to counter inflationary pressures generated by the measure, which gives Venezuela the highest minimum wage in Latin America, the minister said the government was promoting a policy of savings to reduce liquidity in the market. On the same day that he announced the wage increase President Chavez also announced a plan to the release “worker bonds” with high interest returns to promote saving.

“We are promoting a mechanism of rational consumption, the invitation is not to contribute to inflationary consumption, but rather to take advantage of this wage policy,” El Troudi said.

On April 28 the government issued US$4 billion (euro2.6 billion) in bonds in an effort to soak up excess cash and counter inflation.

The minister also announced the reduction by approximately 60 percent in the differential between the official exchange rate pegged at Bs.F 2.15 to the dollar and the unofficial rate since the beginning of the year, from around Bs.F 6-7 to Bs.F3 (according to unofficial figures).

Economist José Gregorio Piña said key factors that have contributed to the relative strengthening of the Bolivar include the recent bond sale, a decrease in liquidity and an increase in domestic investment.

Another a factor that has contributed to the reduction of the unofficial exchange rate is the weakening value of the dollar due to the financial recession in the United States, Piña said.