Venezuelan Inflation Slows in June as Government Keeps Food Price Controls

By Jose Orozco and Corina Rodriguez Pons - Jul 8, 2010

Venezuelan consumer prices rose less than analysts forecast in June as the government maintained price controls on basic foods while shortages on a range of goods were averted.

Consumer prices rose 2 percent last month, down from May’s 2.2 percent increase, according to the central bank’s benchmark Caracas price index released today. The result was lower than the 2.5 percent median forecast of six economists surveyed by Bloomberg. Annual inflation accelerated to 31.3 percent from 31.2 percent a month earlier, the bank said.

Venezuela, the largest oil producer in South America and a net food importer, kept price controls on regulated goods after easing them earlier in the year because of shortages of goods including sugar and beef. Shortages increased after President Hugo Chavez devalued the currency as much as 50 percent Jan. 8.

“The government avoided price increases in regulated goods this month, which explains the slowdown in communications, rents, education and food prices,” said Boris Segura, a Latin America economist at RBS Securities Inc. in Stamford, Connecticut. “This is the lowest monthly inflation the government will reach this year.”

The government in March raised the price caps on rice, sugar and chicken by as much as 35 percent and the prices of milk and cheese by as much as 30 percent on April 5.

Bolivar, Prices

Chavez this year has devalued the currency and created a multi-tiered exchange system under which importers pay 2.6 bolivars per dollar for essential items and 4.3 per dollar for products deemed non-essential.

The free-floating bolivar plunged 27 percent to a record low 8.2 on May 11 before Chavez dismantled the unregulated currency market, operated mostly by brokerages, on May 18. He blamed currency speculators for the bolivar’s slide and for April’s inflation surge.

The new currency market allows Venezuelans to buy dollar- denominated securities within a government-set price band in order to obtain dollars abroad by then selling the securities.

Chavez said that the private sector was responsible for raising prices faster than the minimum wage, and that hoarding by businesses to skirt price controls caused food shortages.

The bank’s shortage indicator, which measures the percentage of goods missing from shelves in the metropolitan area of Caracas, fell from 14.5 percent in May to a seven-month low of 12.3 percent in June, the bank said today.

Alcoholic beverages and household goods led the price gains in the national index, surging 2.8 percent and 2.6 percent, respectively, the bank said. Food prices rose 2 percent.

Venezuela, which has the highest inflation rate of 78 economies tracked by Bloomberg, may post 40 percent inflation in 2010, according to RBS Securities.