Socialist Paradox in Venezuela: Inflation Slows Down While Poverty Increases

A slowdown of inflation does not mean that the economy is improving, but that Venezuelans do not have the purchasing power to buy essential goods

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Prices rise at a slower rate due to liquidity restrictions by the Central Bank (Taringa).

 

The economy of Venezuela, which gets more and more unstable, recorded an inflation slowdown for the first time in five years. Although it might look like good news, it actually reveals a dark picture of the reality that Venezuelans are living.

An inflation slowdown, in the case of Venezuela, does not mean that the economy is improving. On the contrary, it shows that Venezuelans do not have the adequate purchasing power to buy food and essential services. The control of the regime is profound.

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Statistics from the National Assembly, which has an opposition majority,  reveal that inflation in Venezuela decreased in May while prices increased by 31.3% on average. The interannual variability was 815,194%. The South American country continues to have the highest inflation rate in the world.

Last month, the Central Bank of Venezuela broke its silence and disclosed data of economic indicators after five years without revealing this information. It accepted that the country descended into hyperinflation in December 2017.

The explanations for the happenings in the Venezuelan economy is that prices are increasing at a slower pace due to liquidity restrictions by the Central Bank. However, according to the parliament, these measures are hurting the capacity of the local banks to give credit amid the hyperinflation and weak purchasing power. “They are reducing inflation at the cost of causing further contraction of the economy,” said a Member of Parliament, Angel Alvarado.

Despite the decline, inflation in Venezuela is still 2.29 million percent, making it one of the darkest inflationary phenomenons in Latin American history.

“To me, this deceleration is not only of inflation but also of the exchange rate. It has to do with the monetary and credit restrictions that the Government, the Central Bank of Venezuela, and Sudeban (Superintendent of the banking sector) have implemented. In other words, the lack of financing and bolivars has caused prices to be contained, but at a very high cost in a smaller economy,” economist Henkel García told the PanAm Post.

Further, he explained, “at the end of last year and the beginning of this year, we saw that the economy was contracting even more. Today, we have a relatively standard price level, but with an economy that is much smaller than what we had six months ago. Therefore, although the government can view this as a victory, when we evaluate the whole situation, we realize that the net result is unfavorable.”

“People are living with lesser purchasing power than they had a few months earlier. There are fewer Venezuelans in the country as many emigrated, seeking opportunities for a better life. The result of this policy is a small economy that translates into higher poverty, difficulties, and scarcity for those who have decided to stay in the country,” he added.

 

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