Tuesday, February 25, 2014

Venezuela’s Real Inflation May Be Six Times the Official Rate

 Roberto A. Ferdman reports in on Seattle's role model:
Among the complaints of the Venezuelans that have taken to the street by the tens of thousands over the past couple weeks is the government’s inability to stem high inflation. It’s easy to see why people are angry; official figures put the country’s annualized inflation rate at 56%, which is among the highest in the world. And there’s reason to believe even that high number is a drastic underestimate of Venezuela’s actual inflation rate.

The problem with Venezuela’s official rate is that it doesn’t account for the country’s highly active black market, according to Johns Hopkins economics professor Steve Hanke. Venezuela’s shortage index, which tracks the percentage of basic goods in short supply, is approaching 30%—meaning that well over a quarter of the things Venezuelans want to buy, they can’t easily find. The current list includes flour, corn, butter, eggs, and even toilet paper. Government controls have been put in effect to artificially keep prices low, but they have had the opposite effect of discouraging production and exacerbating the shortages.
Note well, how the black market attempts to fill the gap caused by government interventions and government created price distortions:
The result is that almost anything one can buy on the open market can be turned around at a higher price, often in US dollars, on the black market. “The prices in the economy are much, much higher than the controlled prices being used by the government,” Hanke said. “The inflation rate is much higher than anyone is projecting. It’s in the triple digits.” 

It should come as no surprise to students of Austrian economic theory that the soaring price inflation comes at a time when Venezuelan central bank money printing is well into double-digits:

1 comment:

  1. Rising prices are great! They're really defeating evil deflation! A rising cost of living really helps the poor. I bet they're realy happy to pay more for more for food and gas knowing that it's a sign of a booming economy. Rejoice... rejoice everytime you go to the grocery store and pay more for food.