Venezuela: Hyperinflation stabilizes amid Central Bank’s contractionary policies
National consumer prices jumped 33.8% from the previous month in April, following March’s 34.8% month-on-month surge, according to the trove of data released by the Central Bank of Venezuela (BCV) on 28 May. The print marked the third consecutive month of moderating price pressures and indicates that hyperinflation—as defined by monthly price increases of over 50% and which occurred for 11 straight months until February 2019—has stabilized, at least for now. April’s slight moderation largely reflected softer price increases for food and non-alcoholic beverages, and housing rents.
Meanwhile, inflation eased for the second month running but still came in at a stratospheric 282,973% in April, down from both March’s 329,568% and February’s 344,510%, which had marked the highest reading in recent history. For its part, annual average inflation leaped to 253,518% in April from 235,610% in the previous month.
Venezuelan authorities have recently implemented a series of measures that have contributed to slowing the economy’s inflationary spiral. Following aggressive devaluations of the bolivar to keep pace with the black market rate, in early May the BCV authorized the functioning of “exchange tables” run by banks—and with it rendering the official DICOM auction-based foreign exchange system irrelevant—in a bid to stabilize, or at least limit, rising pressures to the exchange rate in the black market, which would in turn feed through inflation. Moreover, the BCV’s policy of drastically raising the reserve requirements on commercial banks has significantly reduced the amount of bolivares that circulate in the economy, which some analysts contend that a large chunk was used via credit to purchase dollars in the parallel market, thus bidding up their price and fueling inflation. That said, although the massive devaluations of the bolivar and the sharp tightening of monetary liquidity in real terms have eased hyperinflation, the measures have also greatly diminished the purchasing power of households. They have come at the expense of severely contracting real incomes, which by itself also serves to restrain demand-pull inflation to some extent, and thus consumption and, ultimately, activity overall in an economy that is already in a deep state of crisis.