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  HOME | Opinion (Click here for more)

VenEconomy: Venezuela’s Economy is an Erupting Volcano

From the Editors of VenEconomy

We, VenEconomy, said in our Thursday editorial that the Venezuelan economy was going from bad to worse.

We changed our minds after official April inflation figures were released on Friday. There is no doubt the economy in Venezuela is an erupting volcano that is just about to enter a new explosive stage.

According to the Central Bank of Venezuela (BCV), the variation in the Consumer Price Index (CPI) reached 4.3% in April, 1.5 percentage points higher than the previous month and the highest inflation rate in the past 3 years. In addition, accumulated inflation hit 12.3% during the first four months of 2013, up eight points from the same period last year.

Meanwhile, the annual inflation rate was located at 29.4% in April 2013, representing an increase of 5.6 points compared with a year earlier.

This means that inflation rate in Venezuela alone accounts for inflation registered in most nations of the hemisphere for all 2012.

Since this is not a reasonable government that constantly reviews its policies, we can infer that inflation was mainly driven by increasing costs in food products (6.4%) for an annual accumulate of 37%, the highest in the CPI. The most serious thing about all this is that the so-called Stratum I, or the people who spend nearly half their monthly salary to buy food, those suffering the consequences of the policies from this communist regime like no other for having to stand an inflation rate of 5% this month and 29.6% year-to-date, above general inflation and other social stratums levels.

Other worrisome figures released by the BCV include those of the Scarcity Index from the National Consumer Price Index (INPC) and Metropolitan Area of Caracas (AMC), which rose to 21.3% in April from 20.4% a month earlier, representing an increase of 6.5 percentage points compared with April 2012.

These figures on scarcity are worsening every time if taken into account that shortages have already extended to other basic items such as, for instance, steel sheets, steel bars, and tin for the food, machinery and automotive industries.

An index that measures workers’ salaries is adding more pressure to this volcano. The index showed salaries increased a scant 2.1% during the first quarter of 2013, lower than the 3.7% registered a year ago, indicating that despite a minimum salary increase effective on May 1, the purchase power of Venezuelans won’t pick up.

And things do not bode well for businesses in May for they will be facing both a minimum salary increase of 20% and an increase in costs of 40% due to a reduction in working hours decreed by the Government.

At this pace, the official inflation goals of 14%-16% for 2013 will be met in May, next month at the latest.

VenEconomy has been a leading provider of consultancy on financial, political and economic data in Venezuela since 1982.

Click here to read this in Spanish


 

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