Venezuela: Inflation eases from December's 22-month high in January
February 12, 2021
National consumer prices rose 46.6% from the previous month in January, down markedly from December’s 77.5% month-on-month increase which had marked the highest print in 22 months, according to data released by the Central Bank of Venezuela (BCV). The moderation was primarily driven by a slower rise in food, drinks and transport prices. December’s print was likely boosted by the government’s Christmas bonus payments which saw the bolivar soberano weaken considerably during the month.
Meanwhile, inflation dropped to 2,665% in January from 2,960 in December. A high base effect from 2019’s period of hyperinflation, as well as the increasing use of USD in everyday transactions and April’s enaction of government price controls, is helping subdue price pressures somewhat. Meanwhile, annual average inflation stood at 2,428%, creeping up from 2,355% in December.
Along with January’s figures, the BCV also published figures for the final three months of 2020, which saw inflation reverse its near-two-year downtrend and spike from 1,937% in October to December’s 2,960% reading, which was the highest rate since January 2020. The increase was largely a result of higher food prices, while the recovery in crude oil prices during the period contributed to higher transport costs.
Looking ahead, inflation is expected to ease throughout the year. The continued dollarization of the economy should temper the inflationary impacts from the incessant depreciation of the bolivar, acute gasoline shortages and elevated money supply. Meanwhile, much focus will be placed on whether the newly installed Biden administration takes a different approach to U.S. sanctions on Venezuela, with any alleviation of the Trump-era “maximum pressure” campaign likely to see an uptick in exports and an easing of import disruptions.
Author: Stephen Vogado, Economist