Venezuela finally breaks the long period of hyperinflation. After four years, the country’s government managed to curb this trend by slowing down the rate of money printing, while society has increasingly embraced the daily use of the US dollar precisely to avoid losing purchasing power.
Based on data from the Venezuelan central bank, prices increased by 7.6% in December, which marks an entire year with monthly inflation below 50%, the limit at which economists place the hyperinflation threshold.
However, the country’s situation can be hopeful, but it is drastically far from good, since, in annual terms, it closed last year with inflation of 686.4%. In fact, the country still has one of the highest inflation rates in the world.
“Hyperinflation in Venezuela is going like it came,” said Ronald Balza, professor of economics at the Catholic University of Caracas, as reported by Yahoo Finance. “The government did not take measures to stop it, rather it stopped doing what was causing it, which is financing itself with accelerated monetary issuance,” he added.
The fiscal deficit is reduced to less than 10% of GDP
According to the professor of economics at the Central University of Caracas, Luis Oliveros, the reduction in public spending by the executive allowed this slowdown in the rate of money printing. This reduced the fiscal deficit to less than 10% of GDP from around 30% in 2017, when the period of hyperinflation began.
On the other hand, Venezuela’s official currency, the bolivar, was pushed aside in favor of the US dollar. The country unofficially assumed the North American currency, to the point that more than 60% of all transactions were made with dollars.
“Although inflation in bolivars continues to be important, it does not collect all the information on what happens with prices in the economy,” explained the professor from Caracas. “You have to pay attention to the prices in dollars.”
Government data isn’t the only one that proves it
Given that the data provided by the Venezuelan administration is not the easiest to believe, there are other organizations and institutions that demonstrate this trend. The data collected by the opposition also highlights this reduction in inflation.
On the other hand, Bloomberg’s ‘Latte Index’, which serves as an indicator of inflation in all countries by tracking over time how much the measure costs in each place, also reflects that price increases have been stabilized.
The digital bolivar remains relatively stable
Venezuelan regulators are increasing intervention in the economy, managing to stabilize the digital dollar, the country’s new currency. In addition, Venezuela has substantially increased its supply of US dollars, injecting up to 100 million per week. The exchange rate has been artificially maintained below 5 bolivars.
“Sooner or later, we are going to see a significant adjustment in the exchange rate and that is going to have an impact on prices,” said José Manuel Puente, a professor at IESA’s Center for Public Policy, since he finds it difficult for the Venezuelan government to enjoy enough cash to maintain this policy, while central bank reserves have fallen below $6 billion, the lowest level in at least 30 years.
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