Inflation and Unemployment Fall to Three-Year Lows in Venezuela

Inflation dropped nearly 8 percentage points, to 19.2% for 2004. Unemployment for December 2004 also dropped significantly, to 10.9%, down 1.9 points relative to the previous month.

January 1, 2005—According to data released by Venezuela’s Central Bank (BCV) inflation dropped to 19.2% in 2004, from 27.1% in 2003. Also, Venezuela’s National Institute of Statistics released unemployment figures, which showed that unemployment had dropped to 10.9% for December 2004 – its lowest December level of the past three years.

The Central Bank attributed the drop in the inflation rate to the currency control, which has controlled capital flight and currency devaluations, and to the control of prices on basic food items. Also, the reduction of the value added tax (from 16% to 15%) and the bank debit tax (from 0.75% to 0.5%) probably helped ease inflation. Another factor was the increased sale of dollars at the official exchange rate of 1,920 bolivars to the dollar, which helped keep the black market rate of the Bolivar down, which, in turn, helped reduce inflation. Government sales of the dollar at the official exchange rate increased from $4.6 billion in 2003 to $14.8 billion in 2004. Government officials have said that they hope to maintain this level of inflation for 2005 and to lower it some more for 2006.

The December unemployment rate dropped 1.9% compared to November, when the rate was 12.8%. This means that 546,569 more Venezuelans now have work compared to the previous month and that the total number of officially unemployed in Venezuela is 1.3 million, out of a total population of 25 million.

The rate of formal employment thus also increased, from 47.6% of the working population in 2003 to 51.3% in 2004. Informal employment, such as street vendors or housemaids, still represent a significant source of employment in Venezuela, just as in most Latin American countries.

Unemployment generally drops significantly in December of each year, as many are hired to cope with the Christmas season, during which Venezuelans who have formal employment traditionally receive large Christmas bonuses that range between three and five times their monthly salary. During December of 2002 and 2003, though, unemployment remained at over 15%, mainly due to the economic effects of the 2002 coup attempt and the 2002/3 shutdown of the country’s all-important oil industry.

In other good economic news for Venezuela, the yearly average price of oil reached a high point of recent history at $33.61 per barrel for 2004, compared to $25.76 per barrel for 2003. The Venezuelan state’s 2004 budget was calculated on an estimate of a price of $20 per barrel, which, according to some experts means that the state had an unanticipated additional income of $5 billion for that year.