UPDATE 2-Venezuela January inflation picks up, annual rate tops 56 pct

Tue Feb 11, 2014 6:01pm EST

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By Brian Ellsworth

CARACAS Feb 11 (Reuters) - Venezuela's consumer prices accelerated in January from the previous month, leaving the OPEC member country's annualized inflation rate near a staggering 56 percent and the central bank's shortages index hit a record high.

The 3.3 percent rise in January came as President Nicolas Maduro decreed new price controls that limit corporate profit margins at 30 percent in an effort to combat what he calls an "economic war" being staged by opposition politicians.

The 51-year-old former bus driver in November ordered merchants to slash prices and sent troops to occupy some business in efforts to stabilize prices, winning the praise of even some of his critics.

But Tuesday's figure spurred renewed questioning of the economic model of state-led growth and currency controls advanced by late socialist leader Hugo Chavez.

"The greater the government works to confront the 'Economic War,' the worse the results are. Is this the right path?" opposition economist Henkel Garcia of Caracas-based Econometrica wrote via Twitter.

January's biggest increases came in restaurant and hotel prices, which rose 4.8 percent. Food and non-alcoholic beverages rose 4.3 percent and alcohol and tobacco products were up 4.0 percent.

The central bank prominently noted the Maduro government's measures to lower prices, but added "some effects of the economic onslaught against the nation continue to be observed."

The 12-month rate hit 56.3 percent, just a tick above December's 56.2 percent pace. The bank called that a positive development since it showed the annualized rate was no longer accelerating as quickly as it had in previous months.

But the bank's scarcity index, a measure of product shortages that have become a top complaint of consumers across the country, jumped to a record 28 percent.

SHORTAGES GROW

Venezuelans have for months been struggling to find basic consumption items including cooking oil, toilet paper, and corn flour used for the typical and ubiquitous arepas, or cornmeal pancakes.

Shoppers often have to wait several hours in lines or visit more than one store to obtain basic goods.

Businesses say the shortages are caused by currency controls that prevent them from importing raw materials and machine parts. Government leaders call them the result of a conspiracy to derail Maduro's government.

A primary driver behind inflation is the torrid expansion of the money supply that vastly outstrips the pace of economic growth. Liquidity grew 3.2 percent in the month of January alone, a figure nearly identical to that month's inflation.

In 2013, the money supply expanded nearly 70 percent.

Maduro in November ordered shops to slash prices for consumer durables such as televisions and home appliances, helping the ruling Socialist Party make a strong showing in December's municipal election.

He assured the measure would push prices down 5 percent that month, but they in fact rose 4.8 percent.

In January, he decreed the Fair Price Law, which requires firms to obtain "fair price certificates" to access dollars through the country's currency control mechanism.

It also carries prison sentences of up to 14 years for crimes including hoarding and "destabilizing the economy."

Socialist Party sympathizers acknowledge inflation is a problem but highlight the expansion of social services during Chavez's 14-year rule.

"It is important to emphasize that the population continues to receive, with equal or greater intensity, the benefits that the state provides through state-run commerce that offers food at accessible prices," the central bank said in its statement.

Critics insist the situation is a sign Chavez's economic model is running out of steam.

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