Venezuela Inflation

Venezuela

Venezuela: Inflation balloons as Venezuelans prepare for December elections

July 10, 2015

The available evidence continues to point to sky-rocketing inflation in crisis-hit Venezuela. Although no official data has been released this year, market estimates indicate that inflation has worsened from December 2014’s 68.5% (the last month for which official data are available) in the first half of 2015. Analysts surveyed by LatinFocus estimate that inflation tallied between 100-130% in May which, if confirmed, would mark a multi-year high. A sharp drop in the price for oil, which accounts for the vast majority of Venezuela’s dollar income, has aggravated dollar and basic good shortages that is fueling inflationary pressures. On top of this, the government maintains a complex system of exchange rates – with the official pegged at 6.3 VEF per USD and large fuel and electricity subsidies which adds pressure on the government’s finances and intensifies dollar shortages. LatinFocus Consensus Forecast panelists see inflation remaining elevated in the coming months and expect inflation to end the year at 115.7%, which is up 6.3 percentage points from last year’s forecast. For 2016, the panel foresees inflation easing to 84.6%.

Against this backdrop, Venezuelans will head to the polls on 6 December in legislative elections. The government’s approval ratings have fallen in recent months in tandem with the worsening economic crisis, and early polls suggest the fragmented opposition is likely to win a majority. In addition, Venezuela’s electoral system has a large majoritarian bias, which increases the possibility that the opposition could win a two-thirds supermajority if the government’s approval rating remains at current levels. A two-third majority would hinder the government’s ability to appoint Supreme Court justices and push-through laws and may even pave the way for a change in government. However, a large amount of uncertainty surrounds the upcoming elections and if the election will be conducted fairly. Moreover, little is known about the opposition’s economic platform and if a change of power would improve the country’s economic crisis.


Author: Angela Bouzanis, Senior Economist

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