Venezuela: slow exit from hyperinflation, but the shopping basket remains light

“They say that hyperinflation is over, but at home, it’s still there,” says Humberto Reco, retired 75 , shopping at the popular market in Caracas. He says prices continue to rise in an economy that has become dollarized.

After four years of hyperinflation, Venezuela has recorded cumulative inflation of 686,4% in 2021, with a monthly rate that has never exceeded 50%, the limit of some economists to speak of hyperinflation according to the reference in the field, Phillip Cagan, who died in 2012.

“ According to Cagan’s figures, we are coming out of hyperinflation. According to the theories of (Carmen) Reinhart and (Kenneth) Rogoff (American economists, editor’s note) we are not there yet. But, it’s a long way off”, explains the professor of economics at the Metropolitan University Hermes Perez.

According to figures from the Central Bank of Venezuela, the price index has increased by 50,6% in January and 33,8% in February 2021, but “only” by 7.6% in December. The trend is therefore for a slowdown in increases.

Hyperfinflation started in 2017 with 862% then exploded with… 130.000% in 2018 , then slightly less than 000.10% in 2020 and 3.000% in 2020.

Humberto Reco “does not feel the improvement” of the indicators but suffers from the permanent increase in prices.

“It remains the highest (inflation) figure in the world”, underlines Hermes Perez, who specifies that Venezuela is the only country in Latin America with inflation at three chi ffres.

To survive against this hyperinflation, Venezuelans have started to use the dollar. And, this dollarization of the economy, with less and less use of the Bolivar, has slowed down inflation.

The socialist-inspired government loosened ballast on the dollar, authorizing the circulation of the greenback, the symbol of reviled American imperialism.

It also made efforts to reduce the budget deficit or to make the exchange rate more flexible in 2018, which made it possible to virtually eliminate the gap between the official rate and the black rate.

However, deeper reforms are needed, say most experts. Mr. Perez, who has notably been in charge of the exchange office of the Central Bank of Venezuela (BCV), underlines that the BCV must stop issuing money to finance the public oil giant Petroleos de Venezuela (PDVSA) in full restructuring after a fall in oil production.

– Life “harder” –

Several experts believe that Venezuela could close 2022 with inflation between 120% and 130%, which would be an improvement but would still remain very high.

But for individuals, these macro-economic data seem out of reality. Reco points out that price inflation also affects prices in dollars.

“People say that with each passing day life is getting harder and harder. +I say no!+ Every minute it’s harder with a big D+,” jokes Manuel Quijada, a 67-year-old vegetable seller, saying he has to readjust his prices rising every week.

According to several witnesses, prices are even increasing every day in certain markets.

Economist and director of the consulting firm Ecoanalitica, Asdrubal Oliveros, believes that Venezuela is registering price increases in dollars above international standards.

According to its studies, the cost of foreign exchange increased by 40% in 2021, compared to 2020.

Despite the difficulties, Marina Dusei, a 50-year-old retiree, explains that the situation has improved over the past six months with the dollar remaining in a range of 4 to 5 bolivares, whereas in the past the bolivar could plummet in a few hours.

She says that t is now easier to organize your budget and make forecasts. But like many inhabitants of this oil country, the unprecedented crisis, which has caused a drop in purchasing power and GDP per capita, now places the country at the same level as Haiti.

“We no longer go out to buy what we like but what we need”, she says, with the hope “that things will continue to improve”.