UPDATE 2-Venezuela hits inflation goal with 20.1 pct in 2012

Fri Jan 11, 2013 3:38pm EST

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* Monthly rate in December was 3.5 percent

* Price controls capped rises in election year

* Economists expect substantial devaluation

By Daniel Wallis and Eyanir Chinea

CARACAS, Jan 11 (Reuters) - Venezuela's inflation rate in 2012 was the lowest in four years as the effects of heavy election-year government spending were offset by strict price controls that kept the indicator within the central bank's target.

Consumer prices rose 20.1 percent, compared with a target of 20 percent to 22 percent, the bank said in a statement on Friday.

Business leaders say the controls are unsustainable long-term, and local economists expect a devaluation of the bolivar currency soon. That would increase government revenue from oil sales, but would also push up prices.

Monthly inflation in December was 3.5 percent, the bank said, meaning last year's annual figure was the lowest since 2008, when the authorities changed the way they calculate the rate. In 2011 it was 27.6 percent, and 27.2 percent in 2010.

Prices for food and nonalcoholic drinks increased the most last month, recording a 5.7 percent rise, followed by transport costs, which climbed 3.3 percent.

President Hugo Chavez's socialist government has capped prices for many consumer goods, helping keep a lid on inflation that has traditionally been the highest in Latin America.

The central bank said all price categories, with the exception of tobacco and alcoholic drinks, increased less last year than they did during 2011.

In late 2011 the government extended controls that regulate prices of products ranging from deodorant to meat, while fixing profit margins.

That helped keep prices in check in a year that brought two elections - a presidential vote in October and state polls in December - despite government spending on welfare programs ranging from home building to cash stipends for single mothers.

It also helped cancer-stricken Chavez win a new six-year term, though he is fighting to recover from surgery in Cuba and has not been seen in a month.

Meanwhile, major policy decisions - including a currency devaluation - appear to be on hold. Last year's blowout campaign spending supported economic growth of 5.5 percent, according to the government's preliminary figures.

A devaluation would slow capital flight as dollars sold illegally on the black market now fetch more than four times the official rate of 4.3 bolivars.

It would also help boost the flow of dollars into the economy, ensuring merchants have dollars to import basic products such as wheat flour that have disappeared sporadically in recent weeks.

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