By Ricardo Vaz
CARACAS, Venezuela, (venezuelanalysis.com) ‒ Venezuela has registered the lowest monthly inflation mark since 2012.
The country’s Central Bank (BCV) reported that consumer prices rose by just 1.4 percent in March, less than half of February’s 2.9 percent. The mark represents the seventh straight month with single-digit inflation.
Accumulated inflation stands at 11.3 percent for the year and 284.7 percent for the past 12 months, a significant turnaround after the Caribbean nation experienced hyperinflation in recent years. Accumulated inflation hit 130,000, 9,584 and 2,961 percent in 2018, 2019 and 2020, respectively.
Lowered inflation is credited by analysts as one of the factors that allowed the Venezuelan economy to stabilize and grow in 2021 for the first time in seven years. BCV figures have the country’s GDP shrinking by more than two-thirds since 2015.
According to the Nicolás Maduro government, GDP rose by 4 percent last year, and forecasts are more bullish for the future.
In a recent report, Credit Suisse upped its 2022 growth prediction from 4.5 to 20 percent. The Swiss investment bank stressed that the number “is not a typo,” arguing that the Venezuelan economy “hit rock bottom” in 2020.
“If we are accurate, these might end up being among the strongest growth prints globally for these years,” the report goes on to add. Credit Suisse likewise upped its 2023 GDP growth forecast from 3 to 8 percent.
The financial institution based its prediction on the expectation that Venezuela’s oil production will grow by more than 20 percent. The optimistic prospects are shared by other analysts, with economist Francisco Rodríguez likewise expecting double-digit growth sustained by increased oil production and high market prices.
The country’s crude production has risen steadily after hitting historic lows in the second half of 2020. Despite being hampered by crushing US sanctions, Venezuela’s main industry had an average output of 558,000 barrels per day (bpd) in 2021, 12 percent more than in 2020. Production was measured at 680,000 bpd in February by OPEC secondary sources.
In its report, Credit Suisse argues that a loosening of US-led unilateral coercive measures could further boost the South American nation’s oil sector. A surprise visit in early March from a White House delegation to Caracas put sanctions relief on the table as Washington looked to replace Russian imports. However, backlash from hardliners saw the Biden administration backtrack.
[12-month accumulated inflation in Venezuela (in logarithmic scale), showing a sharp decline in recent months. (Venezuelanalysis w/ BCV data)]
Since 2018, the Maduro government adopted an increasingly orthodox and liberal path in its efforts to bring the inflationary spiral under control. Measures included lifting price controls and forex controls, tax breaks for imports, frozen credit, increased private sector involvement in state companies and a de facto dollarization.
In recent months, the Venezuelan Central Bank has significantly ramped up its supply of foreign currency to the exchange tables run by private banks in an attempt to keep the bolívar-USD exchange rate under control. Currency devaluation, spurred on by speculation, has traditionally been one of the main drivers of inflation.
Economy portal Banca y Negocios reported that the BCV supplied US $1.5 billion in foreign currency in 2021 and that the amount is on its way to doubling in 2022.
The improved economic outlook likewise saw the government decree a significant wage increase for the first time in months. The minimum wage was set at 126 bolívars (BsD), roughly $30, up from 7 BsD. Public employees have an additional 45 BsD (around $10) food subsidy.
The raised salaries are at the highest mark since mid-2018 but remain far from covering living costs, with many public sector workers picking up second jobs or migrating to the private sector or abroad.
On April 6, leftist political organizations and trade unions staged a protest outside the labor ministry in Caracas to demand that wages be pegged to the basic food basket, which is currently estimated at over $350 a month.