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Consumer prices inch up but remain contained amid currency and price
controls
In May, consumer prices rose 2.3%, which was well above the 1.7% increase
observed in the previous month but in line with market expectations. As a
result, annual inflation accelerated to 35.1% from 33.5% in April. Strong
price spikes in the categories of food/non-alcoholic beverages and
alcoholic drinks/tobacco were the key behind the moderate May increase.
Prices for education, communications and health services helped avert
stronger pressures on prices with monthly increases of 0.0%, 0.1% and 0.3%
respectively. Wholesale prices continued to rise at a more pronounced pace
than consumer prices, pointing toward a potential for underlying
inflationary pressures. In May, the wholesale price index (which includes
prices on imported goods) increased 3.1%, which was up from the monthly
variation of 1.1% in April. The annual wholesale inflation rate remained
virtually unchanged at 64.8%. Rigid exchange and price controls along with
depressed domestic demand continue to serve as a buffer for more
pronounced price increases. Nevertheless, as the black market matures and
foreign exchange becomes more readily available, the domestic price
setting is likely to be increasingly dictated in this market rather than
by the official exchange rate. Furthermore, in the current environment of
declining oil income, increasing social pressures, a hike in public
spending and mounting public debt service costs, the government may choose
to implement an adjustment to the official exchange rate. In fact,
panellists expect the exchange rate to be devalued by 23.6% from current
levels with the currency selling at 2,094 bolivares to the US$ by
year-end. The resulting pass-through of the currency devaluation to
domestic prices would prompt a spike in inflation. Consequently, Consensus
participants expect inflation to reach 44.9% by the end of this year.
Annual current account surplus more than doubles in fourth quarter
In the first quarter, the current account surplus narrowed to US$ 1.9
billion. The first quarter figure was below the US$ 2.1 billion registered
in the final quarter of last year but exceeded the US$ 209 million surplus
observed in the first quarter of 2002. The moderate deterioration in the
surplus over the fourth quarter was mainly due to a lower trade surplus.
Transfers and services balances actually registered a lower deficit.
The trade surplus dropped amid weaker export growth. The nationwide strike
that laid production lame for the full month of January and the only
gradual resumption of oil production in the subsequent two months prompted
a strong slowdown in exports, which dropped a staggering 24.7% in the
first quarter over the previous quarter. Imports declined at an even more
accelerated pace, dropping 44.7% over the previous quarter. As a result,
the annual current account surplus rose from US$ 7.7 billion in the final
quarter of last year to US$ 9.5 billion in the first quarter. Participants
expect the persistence of healthy oil prices to continue to favour the
export sector and to generate a healthy trade surplus in 2003 amidst
faltering domestic demand for imports. Nevertheless, the current account
surplus is anticipated to decline to US$ 7.4 billion this year.
Similarly, despite wide-ranging foreign currency controls, the capital and
financial account deficit reached US$ 1.5 billion, just below US$ 1.6
billion recorded in the preceding quarter and well below the US$ 2.4
billion deficit observed in the same quarter last year.
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