Venezuela may soon be forced to add hyperinflation to its list of socialist disasters. The FT reports that price rises last month hit an all time high while the economy careens into recession:
Prices rose 6.1 per cent in May, compared with 1.6 per cent in the same period last year, bringing accumulated inflation for the first five months of 2013 to 19.4 per cent, almost as high as the annual figure for 2012 of 20.1 per cent.
The sudden jump in prices, with the 4.3 per cent rise in April already sounding alarms, has triggered fears at Goldman Sachs that Venezuela could be on the brink of hyperinflation, which the US bank defines as seasonally adjusted annualised rates of more than 40 per cent. There is no fixed definition of hyperinflation. The International Accounting Standards Board puts it at a cumulative rate of 100 per cent over three years. At present, the annualised rate of inflation in Venezuela is 35.2 per cent.
Despite some of the largest oil reserves on the planet and freedom from a US embargo like the one that beset Cuba, it turns out that Venezuela is an equally sad example of what a socialist paradise looks like. Food, medicine, toilet paper, and dollars are either impossible to find or priced out of anyone’s ability to afford them. Growth in this year’s first quarter clocked in at less than a percentage point, with GDP expected to contract by one percent at year’s end. Year after year, a vicious cycle spawned by a labyrinth of price and currency controls cuts off the oxygen supply to Venezuela’s import-dependent economy and ends up making goods more scarce and inflation more severe.
This is all very bad news for the evidently anxious President Nicolás Maduro, who recently took a page from his predecessor’s book in accusing his political enemies of “plotting to poison him.” Chavista infighting combined with an emboldened opposition and a suffering population spells big trouble for the young leader only two months into his reign.
[Photo of Nicolas Maduro with picture of Huge Chavez courtesy of Wikimedia]