Mérida, 7th June 2013 (Venezuelanalysis.com) – Venezuela has recorded its highest monthly inflation rate since current measures began five years ago, provoking divergent analyses of the country’s economic situation.
Inflation in May was 6.1% according to a report by Venezuela’s Central Bank (BCV) yesterday, an increase from the 4.3% rate recorded in April and bringing total inflation so far this year to 19.4%.
The 6.1% figure is the highest recorded since the National Index of Consumer Prices (INPC) was implemented in 2008 as the BCV’s measure of inflation, with Venezuelan media claiming that it is also the highest monthly rate recorded in general terms since 1996.
The annualised inflation rate from June 2012 – May 2013 was 35.2%, significantly higher than the previous annualised inflation rate to May 2012 of 22.6%.
“These figures have occurred in a scenario affected by the residual effects of the exchange rate adjustment [a 32% devaluation] in February, and the minimum wage raise in May,” read the BCV’s report.
The inflationary spike can be accounted for in large part by a sharp rise in food prices, which increased 10% in May and were the only one of the thirteen product groups measured to rise above the 6.1% average. After food, the products recording the steepest price rises last month were restaurants and hotels, alcoholic drinks and tobacco, home-ware, transport, and shoes and clothing.
The inflation rate news comes among other perceived difficulties for the economy, such as lower than predicted growth of 0.7% in the first quarter of 2013. The country is also experiencing the highest level of food shortages in several years.
Nevertheless, the BCV’s “scarcity index”, which measures the level of food shortages in the country, showed a small reduction in shortages in May in comparison with the previous month.
Further, the employment level remains stable. Unemployment for April was 7.9% according to the government’s National Institute of Statistics (INE), lower than 8.6% recorded in the same month the previous year, and a significant improvement from 1999, when unemployment was 14.6%.
The BCV’s report provoked divergent reactions from both the government and the conservative opposition on the causes and consequences of rising inflation.
Former opposition presidential candidate Henrique Capriles used the news to criticise the government’s handling of the Venezuelan economy, claiming on twitter, “We see the illegitimacy and incapacity of the Great Corrupt One [in reference to President Nicolas Maduro] in the economy, hitting the poorest hardest!”
“Inflation rises, shortages increase, violence goes up, problems grow and Maduro is in a political-party show,” wrote Capriles, who still refuses to recognize his defeat by Maduro in April’s presidential election.
Opposition politicians also argue that government price controls and a lack of state-granted dollars are causing food shortages and rising inflation. Currency controls have been in place since 2003 to prevent capital flight.
Opposition lawmaker Miguel Angel Rodriguez claimed that these economic trends are “a time bomb that can only be deactivated by leaving the communist recipe of controls and stagnation aside,” and proposed measures to promote greater private investment in the economy.
Meanwhile, the government has argued that the current economic situation is due to a temporary confluence of factors, and that measures are being put in place to ensure growth while tackling inflation and shortages.
Officials also maintain that the opposition and private sector are engaged in an “economic war” against the government, attempting to worsen shortages in order to destabilise the country.
INE president Elias Eljuri said yesterday that the inflationary trend is due to “shortages that were generated by hoarding, speculation, the delay in granting foreign currency, insufficient imports, and the lack of primary materials for national production”.
He further stated that the current situation is “circumstantial”, and predicted inflation to begin descending in July. “This is not a structural problem with the economy, it will not be permanent and nor will inflation keep rising,” he added.
Measures introduced by the government to combat shortages and stimulate production include increasing food imports from neighbouring countries, raising price caps on some regulated products, giving more subsidies to the agricultural sector, and granting more foreign exchange to importers and national producers.
On Wednesday President Nicolas Maduro rejected rumours that the government is considering another currency devaluation, arguing, “What’s coming here is a strengthening of the Venezuelan currency and the economy”.