VÍCTOR SALMERÓN
EL UNIVERSAL

Food price increases strongly impact some key variables that measure quality of life. During the first six months this year, there was a 19.3 percent hike in food prices, 16.6 percent in health services, and 17.5 percent in transportation.

According to the Central Bank of Venezuela (BCV), the monthly inflation surged 2.4 percent, which represents an accumulated inflation rate of 15.1 percent in the first six months. These results have virtually ruined the official annual inflation goal at 19.5 percent.

Officials with the BCV and the Ministry of Finance are convinced that the steady price increase is the result of higher demand and low supply of products. Therefore, they decided to slow down monetary expansion abruptly, and liquidity barely climbed 0.8 percent during the first five months of the year. However, the inflation rate continued to grow.

José Manuel Puente, a professor at the Institute of Advanced Studies in Administration (IESA), considers that "the problem is that public spending was adjusted and while the government adopted some monetary policies, Venezuela has been affected by production problems. There is a gap between demand and supply and the way to solve it is through price increases."

Puente says that economy prospects are not good. "With the increase in oil prices and November elections, the incentives to increase public spending during the second half of the year are huge. The best scenario for Venezuelan economy is that the inflation rate remains the same during the second semester." 

Stepping on the gas
The inflation rate in Caracas, the only economic indicator that can be compared with previous years, perfectly shows the rise of this critical figure.

In June, prices rose 2.3 percent in the metropolitan area of Caracas, taking the accumulated inflation rate in the Venezuelan capital to 16.3 percent in the first half of the year. In the same month last year, inflation in Caracas was 7.8 percent. 

There are other indicators mirroring this upward trend: between June 2006 and June 2007, the inflation rate in Caracas soared 19.4 percent, while in June 2007-June 2008 inflation climbed 32.2 percent.

In Caracas, food prices, an indicator mainly hitting low-income households, skyrocketed 49.6 percent during the last 12-month period. The price of health services went up 33.7 percent, transportation 32.1 percent and restaurants and hotels 53.2 percent. 

Increases in food prices have a serious negative impact on the supply-demand imbalance. Venezuelan authorities have acknowledged that inflation has been partially slowed thanks to price regulations.

Price controls have led to food shortage, as the food industries that were forced to sell products at prices below production costs decided to reduce the supply of staples or produce non-regulated items.

Faced with shortage, the Venezuelan government removed price caps from some regulated products. Consequently, by the end of June the prices of the controlled products grew 15 percent, while those for non-regulated products climbed 15.1 percent. 

Imports on the rise
According to a study prepared by economic research firm ODH -based on statistics from the Commission of Foreign Exchange Administration in Venezuela (Cadivi) and the Venezuelan National Statistics Institute (INE)-, imports of foodstuff "could represent 50 percent of the food market in Venezuela." Imports amounted to 26 percent of the market in 2007.

"The current situation suggests that improved food supply during the last few months is mainly the result of increased imports rather than a change in economic distortions created by price regulation and land expropriations," reports ODH.

Translated by Gerardo Cárdenas