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Inflation
spikes in February and government clamps down on ‘unfair’ price hikes
The minister of Planning and Development
claims that the new exchange rate measures will force the government to
revise the 10% inflation target for this year but that inflation will
remain below 30%. The full pass-through effect of the devaluation on
domestic prices is likely to become apparent only in the next couple of
months, since the information provided by the National Statistical
Institute (INE) tends to lag behind the actual data. Nevertheless, the
February price data published on 1 March already indicate that inflation
is accelerating. According to the Central Bank, consumer prices rose 1.8%
in February, which was the highest monthly increase observed since May
1999. As a consequence, the annual inflation rate rose to 13.7% from
12.3% in January.
Concerned about the unwarranted price hikes, the government has authorized
agents of the Institute for the Defence and Education of Consumers and
Users (INDECU, Instituto para la Defensa y Educación del Consumidor y del
Usuario) to monitor stores nationwide and to institute price checks. If
the agents’ investigations conclude that price increases are not ‘fair’,
(prices on imported goods may be raised no more than 30% and 15% for
Venezuelan-made products) businesses are penalized. Penalties include the
forced business closure for up to 15 weekdays and fines as high as US$
7,700. So far, the INDECU has made use of its authority to temporarily
close 140 stores nationwide for speculative pricing. While the
government’s consumer protection strategy may help to contain prices,
further increases in inflationary expectations are likely to be restrained
only by the adoption of sound macroeconomic policy. Consensus
participants expect inflation to pick up further this month by 3.0% over
February, which would be the highest monthly rate in four years and would
raise annual inflation to 16.2%. The government remains confident that
consumer prices will remain below 30% this year, optimism that is not
shared by Consensus participants.
Growth outlook revised downward
amidst new economic scenario
Lower oil prices, fiscal adjustment, currency
weakening, tight credit conditions and higher inflation are expected to
serve to undermine economic activity this year. The Consensus now expects
the economy to enter recession this year, which is down from the meagre
0.2% growth expected in last month’s forecast. The lingering political
uncertainty has participants wavering on presenting definitive scenarios
for next year as the economy is expected to grow. However, it is
important to note the differences in forecasts with some panellists
expecting full scale recovery and others anticipating a contraction.
President reshuffles key cabinet
members
On 27 February, president Chávez replaced
finance minister Nelson Merentes with Francisco Usón Ramírez. Merentes
remains in the administration but was moved to head up the Ministry of
Science and Technology. Usón is a former army general with close ties to
the former president of the state-owned oil company, Petróleos de
Venezuela S.A. (PDVSA), Guiacaipuro Lameda, who was replaced in January by
Gastón Parra. Following three years as the head of the planning
directorate of the Ministry of Defence, he became the head of the Central
Budget Office in 2000. As chief of the Central Budget Office, Usón was
critical of government economic policy on public sector wage increases and
1999 reforms to the Law of the Investment Fund for Macroeconomic
Stabilisation. Even though the new finance minister has strong
credentials, he is not expected to make any significant changes in current
economic policy, given that planning minister, Jorge Giordani, will
continue to hold the reigns over government priorities.
Note:
The above text is an abridged version of the LatinFocus Consensus Forecast
briefing on Venezuela. For more details please click here.
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