June 6, 2013 / 6:21 PM / 6 years ago

UPDATE 2-Venezuela inflation soars to record monthly high 6.1 pct

* Adds to complex economic panorama for Maduro

* Growth also slowing, shortages proliferating

* Opposition slams government over latest price data

By Andrew Cawthorne and Eyanir Chinea

CARACAS, June 6 (Reuters) - Venezuela’s inflation hit a record monthly high of 6.1 percent in May, compounding new President Nicolas Maduro’s economic headaches less than two months after taking office in the OPEC member country.

Last month’s consumer price rises, up from 4.3 percent in April, took Venezuela’s annualized inflation rate to a startling 35.2 percent, the highest in the Americas.

This adds to a complex panorama of slowing economic growth, widespread shortages of basic products, and political tension over Maduro’s narrow election victory to replace late socialist leader Hugo Chavez.

“They are very, very scary figures. There is a very significant risk now of going from stagflation (rising inflation and slowing growth) to hyperinflation,” Goldman Sachs analyst Alberto Ramos said.

“We are really playing with fire here,” he added, saying there was little sign of corrective monetary measures from the government’s economic team.

The May figure was the worst under a new measurement system started in 2008. The worst previous monthly figure, under an old measurement based on major cities, was 7.1 percent in 1996.

Accumulated inflation for the first five months of this year was 19.4 percent, compared with 6 percent during the same period of 2012 and busting the official 2013 target of 14-16 percent.

May’s rise was led by food and non-alcoholic drinks, which rose 10.0 percent, the bank said in a statement.

The new data will fuel critics’ accusations of economic mismanagement by Maduro at a time when his April election win is still being disputed by opposition leader Henrique Capriles.

In a complicated scenario for Maduro, and for many Venezuelans struggling to make ends meet, economic growth slowed sharply in the first quarter to 0.7 percent, from 5.9 percent in the same period a year earlier.

A lack of hard currency has left businesses struggling to import key consumer products. Long queues at shops, and even scuffles, have become common as Venezuelans face shortages of basic goods from toilet paper to wheat flour.


“That’s how they rule,” opposition leader Henrique Capriles said on Twitter, expressing disgust at the inflation figures.

“Don’t be surprised if they start manipulating the figures now ... In one month, we have inflation above the average for Latin America throughout 2012.”

A devaluation of the bolivar currency in February, and heavy government spending throughout 2012 when Chavez won re-election, have exacerbated price pressures in Venezuela, which has for decades suffered high inflation.

The government seeks to minimize the impact on the population via price controls on some basics, and the provision of free or subsidized groceries, healthcare and other welfare services. Officials frequently blame unscrupulous businessmen for price-gouging and hoarding of products.

The government also points out the average inflation under Chavez’s 14-year rule was less than that of predecessors Rafael Caldera and Carlos Perez, who lurched from crisis to crisis.

Henkel Garcia, of the local economic think-tank Econometrica, said a 20 percent rise in the minimum salary had compounded the inflationary impact of February’s devaluation.

He predicted annual inflation of 40 percent, and said another devaluation looked probable.

Vice President Jorge Arreaza said the government’s enemies were deliberately stoking a sense of disaster in Venezuela as part of a wider destabilization campaign.

“Those who go round announcing economic chaos and false devaluations are the same enemies of the fatherland who have been in constant action since 2001. Be on alert!” he said, referring to the buildup of pressure prior to a brief coup against Chavez in 2002.


Most economists believe lowering inflation will require cutting, or at least putting the brakes on, state spending. But Maduro’s popularity depends in large part on keeping the heavy outlays of the Chavez era to finance generous social assistance.

Critics say years of nationalizations under Chavez limited the country’s capacity to produce its own goods, while currency controls have left many importers short of hard currency.

Venezuela devalued the bolivar currency to 6.3 per dollar in February, from 4.3, in a move meant to help shore up government finances stretched by the heavy spending in 2012. But sales of hard currency at that rate are heavily restricted.

“I think it’s clear that the rise in inflation is coming from import prices, which are increasing because of importers’ lack of access to dollars at the official rate,” said Mark Weisbrot, an economist at the Washington-based Center for Economic and Policy Research

“From mid-2010 to the last quarter of last year, inflation was falling even as economic growth accelerated. This can be repeated if the government chooses the right policies.”

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