Venezuela: Inflation eases slightly in April
National consumer prices rose 24.6% from the previous month in April, up from March’s 16.1% month-on-month increase, according to data released by the Central Bank of Venezuela (BCV). The uptick was driven by a broad-based increase in price pressures, with prices in key subindices such as food, drinks and communications all rising at a faster pace compared with the month prior.
On an annual basis, inflation fell to 2,941% in April, easing slightly from the 3,012% print in March which had marked a 14-month high. April’s reading was likely amplified somewhat by a low base effect due to the pacifying effect that the Covid-19 pandemic had on price pressures in the same month a year prior. Meanwhile, annual average inflation stood at 2,729%, creeping up from 2,662% in March.
Looking ahead, inflation is projected to ease gradually throughout the rest of the year and into 2022, although it will nevertheless remain significantly elevated compared to regional peers. The continued dollarization of the economy should counterbalance the inflationary impact from the unrelenting depreciation of the bolivar and elevated money supply. Meanwhile, focus remains on the Biden administration’s approach to U.S. sanctions on Venezuela, with any alleviation of the Trump-era “maximum pressure” campaign likely to see an uptick in exports and an easing of import disruptions.
Regarding the outlook for inflation and its impact on the bolivar, analysts at the EIU commented:
“The regime has shown little inclination to take on the fiscal and macroeconomic reforms that would address the root causes of inflation. It has, however, lent its support to an ongoing process of de facto dollarisation, which will help to ease price pressures over time. […] Given incessant inflation and its effect on nominal values, we believe that another currency redenomination (as in March 2018) or a new currency is a strong possibility. Even though a number of currency regulations officially remain on the books, the regime has largely stopped enforcing them in its recent embrace of dollarisation.”