CARACAS, VENEZUELA- Inflation in Venezuela recently hit its lowest level since 2012.
According to the Central Bank of Venezuela (BCV), consumer prices rose by only 1.4 percent in March, less than half of February’s 2.9 percent. This marks the seventh consecutive month with single-digit inflation.
After experiencing hyperinflation in recent years, the Caribbean nation’s inflation rate is now 11.3 percent for the year and 284.7 percent for the past year. In 2018, 2019, and 2020, accumulated inflation was 130,000, 9,584 and 2,961 percent, respectively.
According to analysts, lower inflation played a major role in Venezuela’s economy stabilizing and growing again in 2021 for the first time in seven years. Based on BCV figures, the country’s GDP has shrunk by more than two-thirds since 2015.
According to the government of Nicolás Maduro, the economy grew by 4 percent last year, and forecasts are more optimistic moving forward.
According to a recent report, Credit Suisse raised its growth prediction for the year 2022 from 4.5 percent to 20 percent. It added that the number “is not a typo,” arguing that the Venezuelan economy “hit rock bottom” in 2020.
“If we are accurate, these might end up being among the strongest growth prints globally for these years,” the report goes on to add. Credit Suisse likewise upped its 2023 GDP growth forecast from 3 to 8 percent.
Specifically, the financial institution predicted that Venezuela’s oil production would grow by more than 20 percent. Other analysts agree, with economist Francisco Rodriguez expecting double-digit growth sustained by increased crude oil production and high oil prices.
After reaching historic lows in the second half of 2020, crude production in the country has steadily increased. As a result of crushing US sanctions, Venezuela’s main industry had an average daily output of 558,000 barrels per day (BPD) in 2021, 12 percent higher than in 2020. According to OPEC secondary sources, production was 680,000 BPD in February.
Credit Suisse argues that a loosening of unilateral coercive measures by the US could further boost the South American nation’s oil industry. In March, a surprise visit from a White House delegation to Caracas led to sanctions relief as Washington sought to replace Russian imports. Nonetheless, the Biden administration backtracked following backlash from hardliners.
To control inflation, the Maduro government has adopted an increasingly orthodox and liberal approach. Among the measures were lifting price controls and forex controls, granting import tax breaks, freezing credit, and increasing private sector involvement in-state companies.
During the past few months, the Venezuelan Central Bank has significantly increased its supply of foreign currency to the exchange tables run by private banks in an attempt to keep the bolivar-USD exchange rate under control. The main driver of inflation has traditionally been currency devaluation, driven by speculation.
According to the economic portal Banca y Negocios, the BCV supplied US $1.5 billion in foreign currency in 2021 and that amount is expected to double in 2022.
A significant wage increase was also ordered by the government as a result of the improving economic outlook. The minimum wage has been raised to 126 bolivars (BSD), roughly $30, up from 7 BSD. Public employees receive an additional food subsidy of 45 BSD (around $10).
As of mid-2018, the salary increases were at the highest mark since mid-2018, yet they are still far from covering the costs of living, leading to many public sector workers picking up second jobs or migrating to the private sector or abroad.
Leftist political organizations and unions protested outside the labor ministry on April 6 to demand that wages be tied to the basic food basket, which is estimated to be over $350 a month.