Venezuela's forced price cuts slow world's fastest inflation

Staff Writer
Columbus CEO

(c) 2013, Bloomberg News.

CARACAS, Venezuela — Venezuela's monthly inflation rate fell in November and December after President Nicolas Maduro ordered shops to cut prices on everything from refrigerators to Christmas lights.

Consumer prices rose 2.2 percent this month and 4.8 percent in November, compared with 5.1 percent in October, the central bank said in a report posted Monday on its website. The median estimate of seven analysts surveyed by Bloomberg was for prices to gain 4 percent in November. The central bank didn't provide the annual inflation figure or the updated scarcity index.

Maduro has blamed shortages and fast inflation on the "parasitic bourgeoisie" and last month ordered more than a 1,000 businesses to reduce prices. Since then, price regulators backed by the military have taken over an electronics chain, a car battery factory, a hardware store and Smurfit Kappa's packaging plant.

Industry has blamed currency controls for crimping imports in a country that gets about 70 percent of its goods from abroad. Venezuela has the fastest inflation in the world among the 103 economies surveyed by Bloomberg.

Food prices rose 7.5 percent in November, restaurants and hotels 5.9 percent and alcohol and tobacco 5.5 percent. Caracas inflation for November was 3.7 percent.

Maduro said price cuts should slow inflation and asked government statisticians in a televised address Nov. 23 to "go beyond the technicalities and technology" when calculating inflation.

The central bank said it undertook an "extraordinary operation" in collecting the inflation data.

"Price speculation on goods and services was out of control, which could have produced monthly inflation of close to 6 percent in November," the bank said. "The data collected was reviewed and businesses were visited again in order to corroborate results."

Price cuts have improved Maduro's popularity, allowing his party to win the majority of mayorships in local elections Dec. 8, according to polling company Datanalisis.

The cost to the economy will be faster inflation and weaker growth next year, Diego Moya-Ocampos, political risk analyst at IHS Global Insight in London, said in an emailed response to questions.

Venezuela's scarcity index, which measures the amount of goods out of stock at any given time, reached 22.4 percent in October, the highest level since January 2008, the central bank said. Annual inflation accelerated to 54.3 percent in October, the fastest pace in as many as 16 years, as shoppers searched for scarce goods ahead of Christmas festivities.

The inflation rate reached 56.1 percent this year, Francisco Rodriguez, chief Andean economist at Bank of America, said in a telephone interview from New York.

"The December slow-down is temporary," Rodriguez said. "Inflation will continue to accelerate in 2014 if there are no structural changes." Prices could increase 75 percent in 2014, he said.