Inflation in Venezuela Higher This Half Year

Merida, July 9^th, 2010 (Venezuelanalysis.com) – Inflation dropped in June, though the first half of the year experienced significantly higher inflation than last year. In the same period, government bodies approved substantially more dollar allocations. Also, two people were arrested for attempting to destabilise the banking system using Twitter.

Inflation in June in Venezuela was down from the month before, dropping from 2.6 percent to 1.8percent, the lowest inflation rate in the last four months, according to AVN and a Central Bank of Venezuela (BCV) report.

This means inflation in June this year was the same as June last year, and accumulated inflation for the first half of the year was16.3 percent. When divided amongst goods and services, prices of goods inflated by 18.6 percent and services by 12.9 percent. Last year’s midway accumulated inflation was much lower, at 10.8 percent.

Inflation in Venezuelan has a range of complex causes, including high social spending, high amounts of imports compared to exports, and scarcity, but it also has psychological causes, with most Venezuelans used to inflation and automatically adjusting their prices around New Year, major festivities and in the July-August mid year holidays.

Breaking the inflation down according to products, alcoholic drinks and tobacco prices went from 4.4 percent inflation in May to 2.8 percent in June, restaurants and hotel inflation decreased from 3.2 percent to 1.6 percent, non alcoholic food and drinks decreased from 3.3 percent to 2 percent, health from 2.1 percent to 1.3 percent, education services from 1.4 percent to 0.6 percent, and communications from 1.2 percent to 0.4 percent.

Inflation varied around the country, and was lowest in June in Maracaibo (1 percent), San Cristobal (1.7 percent) and Guayana (1.6 percent) and highest in Barquisimeto, Merida, and Maturin (2.2 percent in all three states or cities).

The food scarcity indicator for Caracas also dropped relative to May, from 14.5 percent to 12.3 percent, the most favourable supply situation in the last 18 months. Likewise, the product diversity index grew for the third month in a row, to 137.7.

Also, today, Manuel Barrosa, president of the Commission for the Administration of Foreign Currency (CADIVI) provided details related to the government’s assignation of dollars at the official exchange rate.

One of the negative impacts of inflation is capital flight, and the government has had in place currency controls for a long time now, in order to address this. In January, the government increased the official exchange rate of the dollar to the Bolivar from 2.15 to 4.3 for general goods and to 2.6 for essential goods related to health and food.

Barrosa said the government’s assignation of dollars to the health sector increased by 90 percent in the first half of 2010, compared to the same period last year. Dollars allocated to the purchase of machinery that aids local production of goods increased by 135 percent for a total of $821 million assigned so far this year.

He said the BCV assigned $18 billion to the public sector, an increase of 20 percent relative to last year.

Two people using Twitter to destabilise the banking system arrested

National Venezuelan press also reported that the CICPC (Criminal Investigations Body) arrested two Twitter account holders for supposedly using the social network site to spread false rumours in order to cause a bank run and destabilise the national banking system.

“False rumours via social networks are penalised under article 448 of the banking law and in that sense any person who propagates badly intentioned rumours through any means – email, text messages, Twitter, Facebook, or any other technological tool, is committing a crime,” said Wilmer Flores, director of CICPC.

The government has been warning recently against using rumours to destabilise the economy. Just last month, it suspended and intervened in Banco Federal for “irresponsibly” heading towards bankruptcy and failing to comply with banking regulations. The government has already released deposits to almost all account holders. This follows a range of interventions in small banks since November last year.

After the intervention in Banco Federal, the Venezuelan Banking Association, a private institution, publicly stated that it had confidence in the stability of the national banking sector.

“The problem isn’t financial; it is criminal, since those responsible for spreading rumours have a clear intention of causing instability,” said the associations president Juan Escotet.