Venezuelan Opposition: Inflation Drops Under One Million Percent

May was the third consecutive month with inflation below 50 percent.

By Paul Dobson
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Venezuela’s rampant inflation led to incredulous scenes in 2018 before the monetary reconversion, with money was often weighed rather than counted to work out its corresponding value. (Carlos Garcia Rawlins Reuters)
Venezuela’s rampant inflation led to incredulous scenes in 2018 before the monetary reconversion, with money was often weighed rather than counted to work out its corresponding value. (Carlos Garcia Rawlins Reuters)

Merida, June 12, 2019 (venezuelanalysis.com) – Venezuela’s yearly inflation rate has dropped below one million percent, according to the opposition-controlled National Assembly (AN).

The AN’s finance commission has calculated May’s inflation rate at 31.3 percent, following rates of 44.7 and 18.1 percent in April and March, respectively. According to the the AN’s data, yearly inflation (May 2018 to May 2019) is at 815,194 percent, with accumulated inflation so far in 2019 sitting at 905.6 percent.

The body’s figures coincide with Venezuela’s Central Bank (BCV) data released last month. According to the BCV, monthly inflation decreased from over 100 percent in January and February to 34.8 percent in March and 33.8 percent in April. Figures for May have yet to be published.

Both the AN and BCV, despite differing slightly in their numbers, coincide that, for the past three months, Venezuela appears to moving out of hyperinflation, which the country had been suffering from since late 2017. Hyperinflation is commonly defined as a month-to-month inflation rate above 50 percent. Both sets of data seem to contradict previous IMF forecasts that inflation would reach 10 million percent in 2019.

This news came as Venezuela’s Central Bank announced that three new denominations, worth 10,000 (US $1.50 at parallel market exchange rate), 20,000 (US $3) and 50,000 (US $7.50) Sovereign Bolivars (BsS), are to begin circulating on June 13. The current highest denomination note is worth 500 BsS, equivalent to a short inner city bus fare.

The Venezuelan government launched a monetary reconversion in August last year, as part of a comprehensive set of economic measures, removing five zeroes from the Strong Bolivar (BsF) and launching the Sovereign Bolivar. Other measures included pegging the currency to the Petro cryptocurrency and a devaluation of the exchange rate.

The BCV added to these policies with a further and sharper devaluation of the currency in December and lifting exchange controls in May.

Government sources have offered no explanation for the more recent policy changes, nor regarding the latest inflation data, but analysts have credited the exchange rate liberalization, alongside a restriction on the amount of Bolivars in circulation, for the slowing down of inflation in recent months. Many warn, however, that it comes at the expense of a contracted demand.

The inflationary slowdown has coincided with an increase in US sanctions against Caracas, particularly targeting the oil sector. Washington has also threatened to impose measures against the CLAP subsidised food distribution program. Analysts from the Washington-based Center for Economic and Policy Research (CEPR) recently published a report on the effects of US sanctions, arguing that they have been responsible for at least 40,000 deaths since 2015.

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The 3M plant in Carabobo State closed its doors at the end of May, leaving 60 workers without employment. (Carabobo Es Noticia)
The 3M plant in Carabobo State closed its doors at the end of May, leaving 60 workers without employment. (Carabobo Es Noticia)

3M Co. leaves Venezuela

Despite the apparent reduction in inflation, multinational firm 3M co., which leads the market in office supplies such as post-it notes and scotch tape, issued a statement on Tuesday informing its 60 workers in Venezuela’s Carabobo State, as well as shareholders, that it is abandoning the country.

3M follows a series of other North American and European companies which have shut down their operations in Venezuela in recent years. The decision has drawn criticism from local trade unionists, who have appealed to the Labour Ministry for assistance. There has been no government reaction to the announcement at the time of writing.

The Minnesota-based company justified the decision to “deconsolidate” its Venezuela operations by citing operational problems such as its “ability to access various exchange mechanisms, the impact of government regulations on our ability to manage our subsidiary’s capital structure, purchasing, product pricing, and labor relations, the current political and economic situation within the country (…) [and the] unstable environment and heightened unrest that have led to a sustained lack of demand.” It went on to state that it’s Venezuela operations formed an “immaterial” part of its global business.

As part of the withdrawal from Venezuela, Reuters reported that the firm is due to incur US $160 million pretax charges (27 cents per share).

Edited and with additional reporting by Ricardo Vaz from Caracas.

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