UPDATE 3-Venezuela stagflation persists, prices up 25 pct

(Adds central bank confirmation, breakdown of figures)

By Ana Isabel Martinez

CARACAS Jan 7 (Reuters) - Consumer prices in Venezuela rose 25.1 percent in 2009, the central bank said on Thursday, making inflation in the South American oil-producer one of the world's highest.

Analysts say Venezuela's stagflation, soaring prices despite a slump in economic activity, spells a difficult 2010 for President Hugo Chavez's government with a legislative elections looming in September.

The government is expected to spend heavily ahead of the vote to combat an opposition push to slash or overturn the socialist leader's control of the National Assembly.

Though an eye-catching number, Venezuela's 2009 inflation was lower than the 2008 figure of 30.9 percent.

The monthly rate eased to 1.7 percent in December, down from 1.9 percent in November, a central bank statement said, confirming numbers given earlier to Reuters by a member of Chavez's senior economic team.

The December rate was the lowest since March 2009 and down from 2.6 percent in December of 2008.

Goods and services led the rises at 3.2 percent in December, while food and drinks were up 1.6 percent. Education services had the smallest rise, at 0.2 percent.

TRICKY YEAR

Galloping inflation, which the government has forecast at 20-22 percent for this year, is a constant source of complaint among Venezuelans and has weighed on Chavez's popularity along with crime and rationing of services.

His approval rating is about 50 percent, down from around 60 percent a year ago.

Distortions caused by currency exchange controls and shrinking local industrial production are driving the price rises despite Venezuela's economic slump, analysts say.

The economy is estimated to have shrunk 2.9 percent in 2009, its first contraction after five years of growth on the back of high oil prices. See [ID:nN29202281].

Officials are hoping for slower growth of around 0.5 percent this year, though economists warn the economy may shrink again.

The largest local business group, Fedecamaras, which accuses the government of persecuting the private sector, predicts a 2.3 percent contraction in gross domestic product in 2010, and 40 percent inflation.

The Caracas office of BBO Financial Services said 2009 inflation was "sure to be exceeded" this year.

And with "an interventionist government set on attacking the result of the distortions in the economy, rather than its origins, there is further pain ahead for Venezuelans in 2010 in terms of higher inflation and weak economic growth (if any)," BBO added in a report published this week.

Adding to Chavez's economic difficulties this year is a power shortage that has irritated Venezuelans and, say officials, could worsen. [ID:nN0552758]

(Writing by Andrew Cawthorne; Editing by Padraic Cassidy)