Bloomberg News

Venezuela Inflation Slows Further as Chavez Eyes Votes

September 04, 2012

Venezuela’s inflation rate slowed for a ninth-consecutive month in August, as the government ramped up imports of food goods to avoid shortages ahead of elections in October.

Consumer prices rose 18.1 percent in August from a year ago, according to the central bank’s national price index, trailing the 18.8 percent median estimate of seven economists in a Bloomberg survey. Prices rose 1.1 percent last month from July, central bank President Nelson Merentes said today.

“It looks like we’ll be able to close the year below our inflation target of 20 percent to 22 percent,” Merentes said during a press conference in Caracas. “We want to get to a single digit as soon as possible.”

President Hugo Chavez, who is seeking to extend his 13 years in power in elections scheduled for October, tightened price controls this year on 19 consumer care products in a bid to slow inflation while ramping up imports to mitigate shortages.

“This all seems to be geared for elections in October,” David Rees, an emerging markets economist at Capital Economics Ltd. in London, said in a phone interview. “If oil prices were to keep rising there will be less pressure to pull back but I’m assuming that there’ll be a reversal in the supply of foreign currency after the election.”

Food prices, which account for 37 percent of the inflation index, rose 0.5 percent in August. Alcoholic beverages and tobacco and entertainment pushed consumer prices higher in August, rising 4.9 percent and 2.7 percent respectively, the bank said today.

Dollar Sales

An increase in dollar sales to importers has allowed the government to ramp up purchases of goods abroad and slow price gains by increasing supplies. Imports rose 26.8 percent in the first half, according to the central bank, after the bank- administered currency market known as Sitme increased allocations by 32 percent to $5.16 billion in the first half of 2012 from the same period a year earlier.

Cadivi, the government exchange board, increased dollar allocations by 20.2 percent to $8.2 billion in the second quarter of the year from the first three months.

Annual inflation fell below 20 percent for the first time in July since the national index was created in December 2008 to replace the Caracas index.

Toothpaste, Bleach

Consumer companies including Procter & Gamble Co, Colgate- Palmolive Co. (CL:US) and Johnson & Johnson have had to reduce prices on products such as toothpaste, toilet paper and bleach after Chavez installed price caps in April to slow inflation. Chavez, who insists he’s recovered from a battle with cancer to contest the October vote, has said that the price caps are necessary to combat what he’s called “capitalist speculation.”

Venezuela has the third-highest annual inflation rate of 102 economies tracked by Bloomberg after Belarus and Iran.

In January, Chavez threatened to nationalize companies that fail to comply with the price controls. The government already regulates the price of hundreds of basic food goods.

Inflation is likely to rise again following elections as the government devalues the bolivar in order to narrow its deficit, according to Bank of America Corp. and Nomura Securities International Inc. Venezuela will weaken the official rate to 6.2 bolivars per dollar from 4.3 in the first quarter of 2013, according to the median estimate of 14 analysts surveyed by Bloomberg in July.

Economic Growth

While a surge in government spending helped Venezuela’s economy grow 4 percent in 2011 after two years of recession, the government missed its target of reducing inflation to between 23 percent and 25 percent. Consumer prices rose 27.6 percent last year.

The economy, which depends on oil for 95 percent of export revenue, expanded 5.4 percent in the second quarter of 2012 from a year earlier. Merentes said today the economy will grow more than 5 percent this year.

The government has boosted spending ahead of elections on social programs and raised the minimum wage by 32 percent. The number of bolivars circulating in the economy has increased 56 percent during the last 12 months to 550 billion bolivars ($128 billion), according to data compiled by Bloomberg.

Consumer prices in Caracas rose 1 percent in August, the central bank said. Annual inflation in Caracas slowed to 18.6 percent, the lowest since November 2007. The bank’s scarcity index, which measures the availability of goods in stores, fell to 13.7 percent in August from 14.2 percent in July.

South America’s largest oil producer hasn’t had single digit inflation since 1986, according to the central bank’s Caracas price index.

“We’ve perforated the floor of 20 percent annual inflation,” Finance Minister Jorge Giordani said today at the press conference. “We’re not trying to implement a shock strategy to control prices, we’re focusing on providing a greater number of services.”

To contact the reporter on this story: 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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