Economy
Besieged by soaring prices, the Venezuelan government took, in July, several measures such as discontinuing the tax on financial transactions, facilitating imports, implementing subsidies and encouraging investments. However, the inflation rate shows no signs of losing strength.

According to a report of the Central Bank of Venezuela (BCV), after an increase of 2.1 percent in October, Caracas's consumer price index in the last twelve months climbed 35.6 percent. This figure represents a significant jump compared to 17.2 percent during the previous 12-month period.

In fact, during the first ten months of 2008, the inflation rate in Caracas rose 25.8 percent versus 13.6 percent in the same period of 2007.

Analysts agree that the factors that have driven up prices are related to the imbalance between supply and demand, in a context where private companies have exhausted their production capacity and have not invested enough to increase the number of plants.  

As a result, the impact on the variables that mostly affect the quality of life has been considerable: between October 2007 and October 2008, food prices showed an explosive increase of 51.4 percent, clothing and footwear, 21 percent; health services, 36.1 percent; transportation, 36.7 percent; restaurants and hotels, 57.2 percent and education, 28.4 percent.

Among food items, agricultural products skyrocketed 59.3 percent in the last twelve months, while seafood jumped 29.6 percent.

There are some possible solutions to contain price increases such as raising interest rates or cutting public spending in order to discourage demand. Nevertheless, these solutions have a disadvantage: they could further restrain economic growth.

In the first seven months of 2008, industry production increased 3.45 percent versus 9.36 percent in the same period of 2007; in the third quarter, the portfolio of bank credits climbed 5.28 percent compared to 12.3 percent last year. Finally, during the first half of the year, the GDP grew 6 percent, or two percentage points lower than in the same period in 2007. 

Financial authorities have not included in their economic agenda any moves intended to boost supply such as dismantling price or exchange controls, at least in the short term.  

When analyzing inflation nationwide, the Central Bank said that the average price increase in the country's major cities was 2.4 percent in October and 24.7 percent in the first 10 months of the year. 

By assessing the accumulated inflation at the end of October, Maracaibo (western Venezuela) had the lowest rate (22.1 percent), while in Maturín (eastern Venezuela) and Caracas inflation jumped 25.8 percent.

On average, so far this year the consumer price index in Venezuela's major cities has increased by 29.4 percent (foodstuff); 14.6 percent (apparel and footwear); 24.3 percent (health services); 34.9 percent (restaurants and hotels) and 26.4 percent (transportation).

While the government approved a 2009 budget with a 15 percent inflation rate next year, the trend points to more price increases.

Translated by Gerardo Cárdenas

Victor Salmeron
EL UNIVERSAL