[A-List] Inflation and Price Controls in Venezuela

["Yoshie Furuhashi" <critical.montages@xxxxxxxxx>]

<http://www.bloomberg.com/apps/news?pid=20601087&sid=aEQjUNgrqIpU&refer=home>
Chavez Policies Fuel Venezuelan Shortages, Driving Up Inflation
By Alex Kennedy

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The 52-year-old Chavez, who was re-elected to a six-year term on Dec.
3, has used controls to combat inflation since 2003, when he froze the
price of basic foods, such as rice and meat, after a two-month
national strike.

Setting Prices

Since then, he's capped phone and electricity rates, and most
recently, set prices for 45 construction materials after the cost of
some products, such as drywall, doubled in 2006, Irwin Perret,
president of the Venezuelan Construction Association, said in an
interview.

Government-controlled prices account for about half the country's
consumer price index. Venezuela's consumer prices climbed 1.8 percent
in December from the previous month, after a 1.3 percent gain in
November, the central bank said yesterday.

``Chavez favors price and capital controls to keep a lid on prices
rather than spend less or raise interest rates,'' said Alberto Ramos,
a senior Latin American economist with Goldman Sachs Group Inc. ``We
expect Chavez to persist with and possibly deepen these controls.''

At 17 percent, Venezuela's inflation rate was the fastest in Latin
America last month. The rate was 15.8 percent in November; as recently
as May, it was 10.4 percent.

Missing a Target

The speedup in inflation means the government isn't likely to meet its
target of 10 percent to 12 percent this year, said Andreas Faust, an
analyst at Banco Mercantil in Caracas. It missed a similar target in
2006.

Chavez boosted government spending 51 percent during the first nine
months of 2006 as oil sales jumped to a record for Venezuela, the
world's fifth-largest crude oil exporter.

The government price caps are helping to contain the inflation
``demons,'' he said in a Nov. 1 speech in one of the slums in eastern
Caracas.

Venezuela has only allowed farmers to raise the price of some foods,
such as sugar, once in the last four years, compared with a 103
percent increase in consumer prices during the same period. That means
farmers' incomes aren't keeping up with the rising costs of machinery,
fertilizers and worker salaries.

To escape the controls and supplement their income, some farmers sell
their crops at unregulated street markets for a higher price, Moreno
said; others, such as dairy producers, are exacerbating a milk
shortage by making more goods whose prices aren't regulated, such as
cheeses.

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To contact the reporter on this story: Alex Kennedy in Caracas at
Akennedy1@xxxxxxxxxxxxx .
Last Updated: January 2, 2007 23:03 EST
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Yoshie
<http://montages.blogspot.com/>
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