Venezuela’s annual inflation rate is over 4,000 percent: ‘The authorities have lost control’

Feb 7, 2018 2:45 pm

People walk along a street Tuesday during a partial power cut in Caracas. Venezuela's annual inflation rate has risen to 4,068 percent over the past year, according to estimates from the Venezuelan opposition-led National Assembly. (Federico Parra/AFP/Getty Images) 

Kevin RyanSTAFF WRITER

Venezuela’s economic crisis continues to worsen. According to estimates from the Venezuelan opposition-led National Assembly, the socialist country’s annual inflation rate has risen to 4,068 percent over the past year.

Independent economists have produced similar figures.

For January, inflation was 84.2 percent, which analysts estimate would amount an annual inflation of more than 150,000 percent, with prices doubling every 35 days.

The Wall Street Journal reported that the inflation rate, currently the highest in the world, has risen so precipitously over the past 23 months that the Venezuelan government is unable to print enough money; customers often need stacks of bills even when paying for small purchases.

Excessive printing has worsened the country’s economic crisis, with the Venezuelan government printing bolivars at a 14-fold rate since the beginning of 2017, hastened by customers’ desperate spending, which forces the government to replace existing notes every seven to nine months, the Journal noted.

By comparison, one U.S. dollar now is worth roughly 236,000 bolivars, an amount that, according to the Journal, could have paid for a small apartment five years ago. Today, it barely covers an appetizer. A cup of coffee, for instance, costs 45,000 bolivars today. Twelve weeks ago, it would have cost 5,500 bolivars.

The Journal spoke with former economist for the Inter-American Development Bank Omar Zambrano about the current Venezuelan crisis.

“The authorities have lost control, they can’t stop creating bolivars even if they wanted to,” Zambrano said. “This ends in two ways: Either we adopt the dollar or we go back to bartering.”

Others, like Helima Croft, head of global commodity strategy at RBC Capital Markets, are concerned about Venezuela’s inability to manage oil exports, which has also led to a prolonged recession.

“We continue to contend that, given 2018’s tightening oil market, any potential geopolitically driven supply disruption would have an outsized impact versus recent years when the market was awash in crude,” Croft said.

RBC Capital Markets has predicted a fall of at least 700,000 to 800,000 barrels per day in 2018. For a country dependent on oil, such a drop in production would be catastrophic.

“Against this bleak backdrop, the recently scheduled April elections could prove to be the catalyst for more civil strife and economic sanctions that would further erode output,” Croft said. “The clear and present danger to watch is Venezuela, which arguably has progressed past the risk stage given that production is in freefall.”