Bloomberg News

Venezuelan Annual Inflation Rises for Fourth Straight Month

October 06, 2011

(Updates with analyst comment in fourth paragraph.)

Oct. 6 (Bloomberg) -- Venezuela’s inflation rate, the highest of 78 economies tracked by Bloomberg, rose for a fourth straight month in September on higher education costs and increases in regulated food prices.

Year-on-year inflation quickened to 26.5 percent from 25.8 percent in August, the central bank said today in an e-mailed report. Prices gained 1.6 percent from the previous month, trailing the 2.1 percent median estimate of seven economists in a Bloomberg survey.

The government has adjusted food price caps on basic goods to avoid shortages ahead of a presidential election next year, when President Hugo Chavez is running for a third, six-year term. Price limits on milk and vegetable oil have risen twice since a devaluation of the bolivar in January, while caps on rice and corn flour increased as much as 26 percent on Sept. 2.

“The government has been tinkering with various price caps over the last few months, which obviously will impact on inflation,” said Daniel Snowden, an emerging markets analyst at Informa Global Markets in London. “You can see that fighting price increases is very much at the bottom of their agenda.”

The government regulates the price of hundreds of basic food goods to combat what they see as speculation by the private sector.

Shortages

Education, communication, transport and health costs also pushed consumer prices higher in September, rising 8.1 percent, 2.2 percent, 1.7 percent and 1.7 percent respectively, the bank said.

While the government has raised regulated food prices, the central bank’s scarcity index has also climbed this year. The index rose to 14 percent in September, the highest since May 2010, the bank said today.

Currency controls, import restrictions and nationalizations have dried up private investment in South America’s third- largest economy, aggravating supply bottlenecks and reducing competition among retailers and manufacturers.

With real negative interest rates at commercial banks, consumers prefer to spend rather than save.

The extra yield that investors demand to hold Venezuelan debt over U.S. Treasury bills fell 28 basis points to 1337 today at 12:30 p.m. in New York, according to JPMorgan Chase & Co.’s EMBI+.

Voter Discontent

Scarcities of milk, coffee, beef, chicken and sugar in 2007 contributed to voter discontent that resulted in the rejection of Chavez’s plans to change the constitution.

Chavez, who has been in power since 1999 and is receiving chemotherapy treatment for cancer, saw his approval rating rise 10 percentage points between July and September to 58.9 percent, according to Caracas-based polling group Datanalisis.

The government has increased spending on housing and agricultural programs this year as pillars of Chavez’s re- election bid, helping to pull the country out of a two-year recession and grow 2.5 percent in the second quarter from a year earlier.

While the economy may expand more than 4 percent in 2011, inflation is surging beyond the government’s target of 23 percent to 25 percent.

Consumer prices in the capital Caracas rose 1.5 percent in September, while annual inflation quickened to 26.7 percent, the bank said. South America’s largest oil producer hasn’t had single digit inflation since 1986, according to the central bank’s Caracas price index.

Downward Trend

Central Bank President Nelson Merentes said yesterday that consumer price inflation is on a downward trend. He has said that he hopes to slow annual price gains to less than 10 percent by 2014.

Supply bottlenecks continue to be the main driver of inflation and are unlikely to be solved in the medium-term, said Munir Jalil, an economist at Citigroup Inc. in Bogota.

“Has there been a deceleration of inflation? I’d say no,” Jalil said in a phone interview. “In Venezuela, inflation of 25 to 30 percent is the new normal. There aren’t any concrete measures to slow inflation below that range.”

--Editors: Philip Sanders, Richard Jarvie

To contact the reporter on this story: Daniel Cancel in Caracas at dcancel@bloomberg.net. Charlie Devereux in Caracas at cdevereux3@bloomberg.net.

To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net.


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