Venezue­lan in­fla­tion blasts off

Sunday Times - - Business Times -

● What does it look like to have in­fla­tion of 10-mil­lion per­cent? When some­thing that cost $1 now costs $100,000, is there even a way to cal­cu­late the im­pact?

Af­ter see­ing prices surge an al­ready un­think­able 1,000% last year, hy­per­in­fla­tion in Venezuela’s im­plod­ing econ­omy is set to hit nearly 1.4-mil­lion per­cent this year, the In­ter­na­tional Mone­tary Fund (IMF) fore­cast in its World Eco­nomic Out­look this week.

But in 2019 that hy­per­in­fla­tion is ex­pected to leave Earth’s or­bit, hit­ting 10-mil­lion per­cent, a fig­ure so large and im­prob­a­ble that read­ers of the re­port had to count the zeroes to make sure they had the cor­rect num­ber.

It is so bad that Venezuela was left out of the in­fla­tion cal­cu­la­tions for the re­gion and for all emerg­ing mar­kets be­cause in­clud­ing it would throw off the av­er­age.

Af­ter years of eco­nomic mis­man­age­ment, and with the vi­tal oil in­dus­try nearly at a stand­still, Venezuela has seen tens of thou­sands of peo­ple flee the coun­try daily, in­creas­ingly des­per­ate to find food and medicines, flood­ing into neigh­bour­ing Colom­bia and Brazil.

The Venezue­lan econ­omy con­tracted 14% last year and is ex­pected to fall an­other 18% this year, but the good news — if it can be called good — is that with lit­tle room left to fall it is fore­cast to shrink only 5% in 2019, the re­port said.

GDP per capita is es­ti­mated to have de­clined by more than 35% over 2013-17 and is pro­jected to de­cline by close to 60% be­tween 2013 and 2023, the IMF said.

With no­table un­der­state­ment, the IMF said “hy­per­in­fla­tion is ex­pected to worsen rapidly, fu­elled by mone­tary fi­nanc­ing of large fis­cal deficits and loss of con­fi­dence in the cur­rency”.

Venezuela de­val­ued its cur­rency by nearly 100% on Au­gust 20.

Ex­clud­ing Venezuela, in­fla­tion in emerg­ing and de­vel­op­ing coun­tries is ex­pected to reach only 5% this year, the IMF said.

While the news is not nearly so bleak else­where, the IMF cut its fore­cast for world growth to 3.7% for this year and next, largely due to the ex­pected slow­down in trade amid the trade war be­tween the US and China.

It also down­graded its es­ti­mate of growth in emerg­ing and de­vel­op­ing coun­tries com­pared to the July fore­casts, to 4.7% for 2018 and 2019.

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