- Ecoanalítica chief economist Luis Bárcenas told EFE that authorities achieved greater stability in the price of the dollar through an “aggressive” sale of foreign currency. Main photo: EFE
Inflation in Venezuela, which fell to 1% in June, has slowed as a result of a policy to stabilize the price of the dollar – the currency used in the country to price goods and services. However, salaries and bank loans have also been “sacrificed” to achieve this, experts warn.
The government says this is one of the “positive results” of a program launched in 2018, when the country was experiencing hyperinflation, which led to a reduction in price increases from 130,060% that year to 189.8% in 2023.
Although President Nicolás Maduro assured that June inflation was the lowest in the country in 39 years, the Central Bank of Venezuela (BCV) records show that in July 2012, inflation was also 1%, while in March and April of the same year, inflation was 0.9% and 0.8%, respectively.
Luis Bárcenas, chief economist at the firm Ecoanalítica, told EFE that the authorities achieved greater stability in the price of the dollar through an “aggressive” sale of foreign currency. Of these, the vast majority comes from income obtained from oil exports.
Between January and May of this year, an average of more than $350 million a month was sold through banks, according to calculations by Ecoanalytics.
In this way, the expert explained, the national market is “flooded” with foreign currency to generate an oversupply of the US currency.
According to BCV, the price of the dollar went from 35.9 bolivars to 36.4 in the first half of 2024an increase of 1.3%, while in the same period in 2023, the currency rose from 17.4 bolivars to 27.8, an increase of 59.7%.
Inflation in Venezuela in 2024 according to the BCV
The Central Bank of Venezuela reported that the country’s economy accumulated inflation of 8.9% in the first six months of 2024 and revealed that the consumer price index (CPI) was 1% in June.
According to the issuing body, the sector that registered the largest increase in June was food and beverages (1.5%), followed by education services (1.1%), health (0.9%), clothing and footwear (0.8%), various goods and services (0.6%) and communications (0.6%).
The figures released by the BCV represent a variation of 1.4% with respect to the percentage increase in the CPI indicated by the Venezuelan Financial Observatory (OVF), which recorded 2.4% inflation in June of this year.
The other side of the policy to control inflation in Venezuela
The anti-inflation strategy also includes keeping the issuance of bolivars at bay. In this regard, Bárcenas indicated that the “first sacrifice” is the minimum wage – a reference for the rest of the remunerations in the public sector – and pensions, at 130 bolivars since March 2022, which have since gone from regarding 30 dollars to 3.5 currently.
He pointed out that, despite migration, estimated at some 7.77 million Venezuelans by the Interagency Coordination Platform for Refugees and Migrants (R4V) – a figure that the Maduro government lowers to less than 2.5 million -, “the size of the State is still so large in terms of personnel and dependents” that “any salary adjustment would cause fiscal spending to increase significantly from one month to the next.”
Therefore, Bárcenas believes that a policy was developed “at the expense of the Venezuelan people’s pockets”, who have also been affected by the credit restriction.
The slowdown – he continued – is also due to the “reduced” purchasing power; while “a sector of the population” has “still restricted consumption” and prioritizes its spending mainly on food, the prices of goods and services will remain “relatively stable.”
The Venezuelan Financial Observatory (OVF), an autonomous body made up of economic experts, also claims that the slowdown in inflation is due to greater stability in the exchange market and the “wage restraint” applied by the government.
A “fragile” stability
Bárcenas said that Venezuela currently depends “more than ever on oil” to maintain this exchange rate stability, with factors that might work once morest it; such as the US sanctions, reinstated in April following six months of relief, which “limit sales (of crude oil) in the international market.”
Furthermore, this stability is subject to global events that have an impact on the energy sector, such as a conflict or lower consumption in major economies. This “causes the price of oil to fall” and, consequently, the country’s income to decrease, with the risk of facing a “foreign currency shortage.”
All this tranquility in terms of exchange rates (…) can be lost if, at a given moment, the economy begins to face problems in the generation of foreign currency,” said the economist.
Authorities expect Venezuela, which experienced hyperinflation between 2017 and 2021, to close 2024 with inflation below 50%.
With information from EFE.
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2024-07-10 02:13:31
