Venezuela's timid gains in taming inflation fade as food prices soar

CARACAS (Reuters) - Venezuela’s modest advances in taming inflation since last year are being wiped out by chronic fuel shortages and a plummeting exchange rate, driving food prices up amid the coronavirus pandemic, according to economists, lawmakers and industry leaders.

People shop at a fresh produce market, in Caracas, Venezuela May 9, 2020. Picture taken May 9, 2020. REUTERS/Fausto Torrealba

After peaking in 2018 at 1.8 million percent, inflation slowed last year as President Nicolas Maduro eased socialist economic controls, helping keep monthly consumer price increases below 30% in February and March.

But with a lack of fuel making it difficult to deliver goods and the bolivar depreciating some 60% in 2020, consumer prices rose 80% in April, the opposition-controlled National Assembly said on Monday, meaning interannual inflation was 4,210%.

Shoppers on the streets say prices for some goods are doubling in a matter of weeks.

“Everything is rising so quickly that what I deposit in my account doesn’t buy anything,” said Diocelina Ospina, 67, a maid shopping in the city of Maracay who bought only 200 grams (0.45 pounds) of cheese because its price had jumped 40% in a week.

“All we can do is eat less and stretch what we have.”

Inflation data in Venezuela is largely based on figures released by the opposition-run Congress, because the central bank publishes official data with several months of delay.

The “Petare basket,” an informal index named for the sprawling east end of Caracas that measures the price of eight basic food items, has jumped 109% since mid-March, according to the legislature.

Prices for basic staples jumped in the last week of April despite a government order to freeze prices of 27 products. Merchants have continued to raise prices anyway in order to avoid selling at a loss, according to four sources with knowledge of the situation.

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The complaints of shoppers are similar in the border city of Maracaibo, where prices for a carton of eggs and a kilo of corn flour doubled during April, according to Reuters witnesses.

Economists say Venezuela needs to keep monthly inflation below 50% to escape a vicious circle of hyperinflation that began in 2017 and spurred a mass migration in which 5 million people have left the country.

Though many transactions are taking place in dollars after Maduro’s 2019 liberalization, hyperinflation still affects many among the population who depend on pensions or government salaries paid in bolivars.

“In May, inflation may be higher due to supply chain misalignments after price regulation, shortages of gasoline and the delayed impact of the (currency depreciation),” said Tamara Herrera, director of financial consultancy Sintesis Financiera.

The collapse in global oil prices, combined with U.S. sanctions, have left Venezuela unable to provide fuel to service stations, creating days-long lines to buy gasoline that has for years been nearly free.

Truck drivers hauling fruit and vegetables, to motorcycle home-delivery services, are turning to the black market, where fuel fetches $2 per liter in Caracas and $3 to $5 in other parts of the country.

That is driving up prices of goods sold via delivery services, which have become much more popular during quarantine, with the cost of home-delivered chicken rising 143% and meat 50% in two weeks, according to economic think tank Cedice.

The central bank has also largely stopped selling euros and dollars in cash to banks, a measure that had kept the exchange rate stable, according to two financial sector executives.

As anger over rising prices sparked several instances of looting in the east of the country, late last month the government resumed its policy of price controls that Maduro had effectively cast aside when he began opening the economy.

Industry leaders warn that the measures disrupt productivity, and merchants are already limiting the number of some basic goods customers can buy.

In San Cristobal, eggs disappeared from store shelves but appeared at informal street stalls. In Maracay, some merchants sold cheese and meat to trusted customers to avoid losses.

“I have a small shop and I can barely keep running it,” said Gerardo Avila, a Maracaibo merchant, who worried that people will not have enough money to continue buying at current prices. “Also, gasoline is now an extra cost.”

Reporting by Mayela Armas and Corina Pons; Additional reporting by Vivian Sequera in Caracas, Mircely Guanipa in Maracay and Mariela Nava in Maracaibo; Editing by Daniel Wallis and Dan Grebler