Inflation in Venezuela
Venezuela - Inflation (end of period)
Political opposition initiates recall referendum amid worsening energy crisis
President Nicolás Maduro implemented a series of drastic measures in an attempt to combat the worsening energy crisis. Limited energy production coupled with runaway inflation and chronic shortages of consumer goods have exacerbated the economic woes Venezuela is facing. The political opposition has set in motion two legislative processes to end Maduro’s term while the president continues to stifle any attempt by the opposition to erode his grip on power. While the power struggle intensifies, the latest indicators point to a deepening crisis ahead of bond payments due this year.
Limited electricity production prompted Maduro to shorten the work week for public sector employees to two days to save energy and avoid generalized blackouts. The decree, set to last until 27 May, instructs the closure of all state-owned offices and industries, and includes four-hour daily power cuts across the country. The measure has led to looting and rioting in different cities. It is expected to aggravate chronic shortages of goods and services and to constrain economic activity in the already-depressed economy.
The political opposition represented by the Democratic Unity Roundtable (Mesa de la Unidad Democrática, MUD), has sped up its efforts to oust Maduro. After the MUD’s attempt to shorten Maduro’s presidential term via a constitutional reform was blocked by the Supreme Court, the MUD begun to collect signatures to launch a recall referendum before the year’s end to remove Maduro from office. The MUD collected over 1.8 million signatures in a six-day period, which was nine times the 200,000 signatures needed to initiate the first phase of the recall process. The second phase is set to start on 3 June and constitutes recollecting four million signatures in three days to trigger the referendum. The government, on the other hand, responded by creating the “council for signature revision” to audit all signatures. On 13 May, President Maduro declared a two-month long state of emergency and extended his special powers to rule by degree in economic affairs. With the sweeping powers, the government has threatened to block the recall referendum. The ongoing tug of war has exacerbated the country’s bitter political division and resulted in a burst of political violence. For instance, a local opposition party leader was assassinated in early May while MUD leader Jesús Torrealba was attacked by government sympathizers in late April.
The growing polarization between the government and the opposition offers little hope of implementing far-reaching solutions. Latest available data show that inflationary pressures keeps mounting. In March, the money supply increased by 102.4%, while the government raised minimum wages for the second time this year to keep up with soaring prices. Panelists surveyed by the LatinFocus Consensus Forecasts report estimate that inflation soared from December’s 180.9% to 200.2% at the end of the first quarter of this year.
Against a backdrop of economic freefall and ballooning inflation, there is growing concerns of a sovereign debt default ahead of over USD 8.0 billion in bond payments this year alone. Latest available data show that Venezuelan international reserves stood at a multi-year low of USD 12.7 billion in April (March: USD 13.2 billion). Furthermore, the state-owned oil enterprise, PDVSA, issued at least USD 310 million in debt to other firms in May as it negotiates private issuances to settle debts with suppliers of over USD 4.0 billion this year. Analysts consider that a unilateral default by PDVSA is very unlikely due to the retaliatory measures that could be taken by creditors, though production shocks and falling oil prices could increase the probability of a default. If the energy crisis continues, this could force the government to use part of PDVSA’s crude production for domestic power generation, which will limit earnings to honor its debt commitments.
FocusEconomics panelists are increasingly pessimistic about the country’s outlook and foresee GDP falling 7.8% in 2016, which is down 0.6 percentage points from last month’s forecast. For 2017, the panel expects the economy to contract 1.5%. Simultaneously, inflation is seen ending 2016 at 326.3%. For 2017, the panel expects inflation to ease to 244.5%.
Venezuela - Inflation (eop) Data
|Inflation Rate (CPI, annual variation in %, eop)||27.6||20.1||56.2||68.5||181|
5 years of economic forecasts for more than 30 economic indicators.
Venezuela Inflation (eop) Chart
Source: Venezuela Central Bank and FocusEconomics calculations.
|Bond Yield||5.50||0.0 %||May 19|
|Exchange Rate||10.00||0.0 %||May 26|
|Stock Market||15,351||0.24 %||May 26|
Get a sample report showing all the data and analysis covered in our Regional, Country and Commodities reports.
May 13, 2016
In April, the average price of Venezuela’s mix of crude oil rose a healthy 6.3% over the previous month, reaching USD 31.6 per barrel.
May 12, 2016
President Nicolás Maduro implemented a series of drastic measures in an attempt to combat the worsening energy crisis.
May 11, 2016
After crossing the 1,200 VEF per USD threshold in the parallel market and hitting an all-time low on 10 March—the same day that the new two-tier exchange rate system was introduced—the bolivar appreciated marginally and stabilized.
May 6, 2016
Car sales recorded a massive 83.9% contraction over the same month of the previous year and totaled 279 units in April, according to figures from the Venezuelan Automotive Chamber (CAVENEZ, Cámara Automotriz de Venezuela).
April 15, 2016
After crossing the 1,200 VEF per USD threshold and hitting an all-time low on 10 March—the same day that the new two-tier exchange rate system was introduced—the Bolivar appreciated, albeit marginally.