Venezuela

Devastating forecast: Venezuelan inflation could reach 30,000 percent, economists say

A manager weighs banknotes on a scale at a bakery in Caracas, Venezuela, on Oct. 13, 2016. Once one of the world’s strongest currencies, the bolívar has been reduced to a nuisance: Each purchase requires so many bills that businesses are weighing, not counting, them.
A manager weighs banknotes on a scale at a bakery in Caracas, Venezuela, on Oct. 13, 2016. Once one of the world’s strongest currencies, the bolívar has been reduced to a nuisance: Each purchase requires so many bills that businesses are weighing, not counting, them. Bloomberg

Venezuelans already facing unprecedented hardships will suffer even more difficult times in 2018 as hyperinflation could easily spike past the 30,000 percent mark, economists have warned..

At that pace, inflation will have an even more devastating impact on the people of a country that already has the lowest minimum salary in Latin America, about $2.46 per day, or $74 per month.

The spike in prices means the buying power of Venezuelans could drop by 50 percent from one month to another, and by 75 percent in just eight weeks, according to economists.

The South American country’s economy officially entered a period of hyperinflation at the close of 2017, with an accumulation of problems that drove inflation to 3,000 percent for the year.

But that’s just the beginning, said Francisco Ibarra, head of the Econometrica company.

The rate of inflation began to accelerate significantly in August and faces no obstacles to keep rising even higher in 2018 because the regime of President Nicolás Maduro seems likely to continue printing money since it lacks the cash needed to finance operations, Ibarra said.

And that means that in just a few months, the rate of inflation could be way higher than what some companies have been predicting for the year that just began, according to Ibarra.

“Those who are now predicting that Venezuela will close 2018 with an inflation rate of 5,000 don’t really understand what is happening,” he said. “We could hit that 5,000 mark already in February.”

The economist said that given current conditions, a conservative estimate for inflation at the end of 2018 would be 30,000 percent — but that 100,000 or even 200,000 percent cannot be ruled out.

“Given the current trend, that rate [of 30,000 percent] is in fact very optimistic,” he added.

Venezuelan economist Alexander Guerrero said the country’s inflation rate grew six- to seven-fold in 2017, compared to its rate at the end of 2016.

But the acceleration in the pace of price increases during the last half of 2017 points to a much faster rate of growth for this year, Guerrero said.

“Comparing 2017 to 2018, it could grow by 35 to 40 times,” he added.

That would put inflation by the end of 2018 at between 105,000 percent and 120,000 percent.

Although those calculations may seem outrageous, Venezuela would still fall far short of the hyperinflation marks set by Hungary in 1945, Yugoslavia in 1992 and Zimbabwe in 2007. Those countries saw inflation rates double from one day to the next.

Steve Hanke, a professor of applied economics at Johns Hopkins University in Baltimore, said any attempt to make predictions in a hyper-inflationary setting like Venezuela’s would be useless.

“Once inflation hits those levels, we simply cannot predict how much higher it will go,” said Hanke, a top expert in the study of hyperinflation.

​He added that Venezuela has nevertheless clearly entered a period of accelerated deterioration and will face even worse conditions this year unless there’s a significant change in the management of the economy. He estimated the current rate of inflation at close to 4,000 percent.

“The Venezuelan economy is locked in a death spiral,” he added.

It is possible to contain the spiral and do so rapidly, Hanke added. But that would require steps that Maduro’s socialist and profoundly anti-American government would find difficult to adopt.

“Adopting the U.S. dollar is the only guaranteed way to stop this,” said Hanke, who has studied 58 cases of hyperinflation around the world and advised two countries, including Ecuador, on how to shift to the U.S. currency.

Adopting the dollar “immediately stopped the high rates of inflation” in those countries, he said.

Follow Antonio María Delgado on Twitter:@DelgadoAntonioM

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