Venezuela: Inflation falls to over two-year low in May but remains sky-high and is expected to spike on Covid-19 fallout
June 8, 2020
National consumer prices rose 38.6% form the previous month in May, up from April’s 27.5% month-on-month increase and marking the highest print in four months, according to data released by the Central Bank of Venezuela (BCV) on 8 June. The acceleration largely reflected faster rising prices for household equipment, food and housing services. On the other hand, prices for apparel and transport grew at a softer pace than in the previous month.
Meanwhile, inflation receded to 2,297% in May (April: 2,312%), marking the lowest print since March 2018. The removal of price controls last year enabled the private sector to play a greater role in the import and sale of consumer goods, thus reducing price pressures. This, coupled with a rapid dollarization of the economy, have helped quell price pressures somewhat. Meanwhile, annual average inflation stood at 3,231%, down from 3,759% in April.
Going forward, inflation is expected to accelerate, however. Inflationary pressures stemming for an acute gasoline shortage are set to spillover into others sectors of the economy, while the sharp depreciation of the bolivar will result in a stronger pass-through effect. To tame the bout in inflation, on 24 April the government reintroduced price controls on 27 food products, and hiked the minimum wage as well as pensions and food bonuses. The move is likely to aggravate shortages and spawn parallel markets, however.