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Goldman Warns Of Venezuela Hyperinflation Threat

Tyler Durden's picture


Year-over-year inflation in Venezuela accelerated to 35.2% - up from 20.1% YoY in December. Goldman is concerned as the 6.1% MoM (the highest on record) in May means inflation is now endemic and the economy could easily veer from the current stagflation equilibrium into the dangerous and slippery road to hyperinflation. In a sentence that rings all to close to home, they sum up: All in all, we are increasingly concerned with the inflation and monetary dynamics in Venezuela as the classical Sargent and Wallace (1981) “unpleasant monetarist arithmetic” of severe fiscal dominance brought about by growing monetization of fiscal deficits and very weak policy credibility could easily degenerate in a recessionary hyper-inflationary spiral. That must mean it is time to buy the Caracas Stock Index (+72% YTD, +600% since Jan 2012)?


Via Goldman Sachs:

Venezuela: Rising Risks that the Economy Could Shift From Stagflation Toward Hyperinflation


INPC Headline Inflation (May): 6.1% mom vs. Consensus 4.1%

INPC Core Inflation (May): 5.0% mom (36.0% yoy)


Consumer prices rose by a very high 6.1% in May (the highest monthly print on record), driving the yoy measure to 35.2% from 20.1% in December. Food prices rose by 10.0% in May (following the 6.4% increase in April) and are now up 48.1%. Food inflation is a particularly regressive social tax as it disproportionately affects low-income households for whom the weight of food in the overall consumption basket is higher than for the representative consumer.

Eleven of the 13 CPI groups have now inflation running above 20% yoy, which shows Venezuela is now trapped in stagflation (real GDP collapsed to a minor 0.7% yoy during 1Q2013 while annual inflation accelerated by 15pts) and entering the dangerous and slippery road of hyperinflation.

Core INPC inflation printed at an also very high 5.0% in May, driving the yoy measure to 36.0% from 21.4% yoy in December.

Inflation is now endemic and the economy could easily veer from the current stagflation equilibrium onto the dangerous and slippery road to hyperinflation, as money’s velocity of circulation could accelerate very significantly and create negative feedback loops. In fact, at the margin, over the last two months the annualized monthly rate of inflation is already deep into hyperinflation territory (which we define as seasonally adjusted monthly annualized rates of 40%+)

Underlying inflationary pressures are higher than the (in itself very high) official print (36.0% yoy; INPC core) given the presence of still-significant repressed inflation in the system as roughly half of the prices in the CPI are controlled by the government.

The goods scarcity index remains high and very near a record high 20.5% in May, up from the 14.2% 2012 average. Furthermore, the diversity index dropped to 113 in May from 160 in December and 181 a year ago. That is, beyond inflation consumers are also facing rising non-pecuniary costs as they have to allocate increasing amounts of time to search for the desired goods and often have to settle for inferior substitutes. Ultimately, stifling price controls and the significant decline in the supply of dollars to the economy after the October elections are now leading to rising levels of scarcity and declining levels of product diversity.

We expect political uncertainty to remain high in the near term and governability conditions to weaken. This should contribute to keep inflation high as the VEF is likely to continue to weaken further in the non-official market and private investment spending is likely to remain low. In the meantime, the ruling PSUV party's much weaker-than-expected showing at the polls on April 14 may add pressure for additional populist increases in fiscal spending, which are likely to be accommodated by the central bank.

In all, inflation is entrenched at a very high level and is likely to accelerate further in 2013, towards 40% from 20.1% in 2012, given the significant increase in liquidity (M0 growth accelerated to 65% yoy in April and M3 is up 62% yoy) and the yet to finish pass-through from early February's large 32% VEF/USD CADIVI cash rate devaluation. The high inflation environment and fiscal cash-flow crunch are adding pressure for another VEF devaluation.

All in all, we are increasingly concerned with the inflation and monetary dynamics in Venezuela as the classical Sargent and Wallace (1981) “unpleasant monetarist arithmetic” of severe fiscal dominance brought about by growing monetization of fiscal deficits and very weak policy credibility could easily degenerate in a recessionary hyper-inflationary spiral.


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Thu, 06/06/2013 - 20:48 | 3632036 Tourist2008
Tourist2008's picture

Up 72% in which which currency?

Thu, 06/06/2013 - 20:53 | 3632055 lolmao500
lolmao500's picture

Yeah well it doesn't really matter. 600% up since 2012... I doubt the Venezuelan currency went down that much since then.

Thu, 06/06/2013 - 21:01 | 3632091 Spider
Spider's picture

If I were a Venezualan i'd get my butt into gold - well probably too late on that one...  Thats what happens when you procrastinate on PMs

Thu, 06/06/2013 - 21:47 | 3632154 Supernova Born
Supernova Born's picture

Crazy Ben's traveling freakshow of inflationary instability. Received raving reviews in front of test audiences during the Arab Spring. Now in limited release in the third world. Wide release in the first world coming soon.

Thu, 06/06/2013 - 21:54 | 3632270 economics9698
economics9698's picture

I always wanted a $25 Big Mac combo, now I can get one my next trip down there.

Thu, 06/06/2013 - 23:56 | 3632594 Scarlett
Scarlett's picture

if you pay before you eat

Thu, 06/06/2013 - 21:50 | 3632256 kito
kito's picture

actually, if i were living in venezuela, id get my butt into toilet paper:


i dont know about you, but my butt prefers toilet paper over gold........................................

Thu, 06/06/2013 - 22:01 | 3632291 lolmao500
lolmao500's picture

Meh, hire yourself a good looking slave to lick your ass... cheaper and feels better.

Thu, 06/06/2013 - 22:27 | 3632373 Common_Cents22
Common_Cents22's picture

They have plenty of Indian paper, their left hands.

Fri, 06/07/2013 - 01:12 | 3632677 Unpopular Truth
Unpopular Truth's picture

they could use devalued banknotes.

soon we will have the same problem here as well: We will have more dollar bills than toilet paper... and they will be worth less...

Fri, 06/07/2013 - 09:13 | 3633290 Jdog
Jdog's picture

Do they print money like Ben does?

Thu, 06/06/2013 - 20:49 | 3632038 JJ McApe
JJ McApe's picture

Watching the financial news is like watching old fashoned rassling. It's fixed, it's programmed the winners have already been chosen and everyone spits the doe after the show. If only they could sucker the retail investors back chance....

Thu, 06/06/2013 - 21:00 | 3632082 LetThemEatRand
LetThemEatRand's picture

My favorite character is Big Ben the Destroyer.  He has opened up a can of whoop ass on our economy that no one can stop!  Ain't nobody going to beat him.  Not even Fabulous Faber.

Thu, 06/06/2013 - 20:49 | 3632040's picture

now i know why i keep getting information saying Venezuelans will keep the hot Miami real estate market going

Thu, 06/06/2013 - 20:51 | 3632041 Hype Alert
Hype Alert's picture

They win!  Bernanke's going to be pissed!

Thu, 06/06/2013 - 20:52 | 3632049 lolmao500
lolmao500's picture

Way better than the Nikkei or the DOW!

Thu, 06/06/2013 - 21:00 | 3632084 LeisureSmith
LeisureSmith's picture

BOGOTA : Colombia’s defense ministry later this month will sign a cooperation agreement with NATO, in hopes of joining the international military alliance, President Juan Manuel Santos said Saturday.

Venezuelans will dig that.

Aaand some food rationing.

I have a feeling someone is softening up a target.

Thu, 06/06/2013 - 22:34 | 3632407 kito
kito's picture

colombia is the only true bitch run by the u.s. in south america.............................and thats because they get lots of government welfare from uncle sam..............wait until america has to wrap up its foreign policy and reel back the funds that go abroad..............we shall see how cooperative colombia becomes.................................

Thu, 06/06/2013 - 21:01 | 3632085 perelmanfan
perelmanfan's picture

Wow, look how great their economy is doing! I'm so happy that the U.S. is pursuing a similar, enlightened policy! Looking forward to Weimar-style hypergrowth!

Thu, 06/06/2013 - 21:02 | 3632093 ziggy59
ziggy59's picture

Hire a banker from GS, they will fix the problem...

Thu, 06/06/2013 - 21:08 | 3632106 Monedas
Monedas's picture

I wanna buy Red Toilet Paper calls  .... on the Carcass OTR Futures Mercado .... it's a great cyclical play .... every lunar month .... put your money where your mouth would like to be ! 

Thu, 06/06/2013 - 22:09 | 3632316 Imminent Crucible
Imminent Crucible's picture

Causes cancer.

Thu, 06/06/2013 - 21:06 | 3632110 JLee2027
JLee2027's picture

Hyperinflation is on the verge of breaking out in several countries - Venezula, Agentina, Japan, some of SE Asia, and perhaps parts of Eastern Europe.

Thu, 06/06/2013 - 22:13 | 3632331 yogibear
yogibear's picture

Yes, Japan is wanting it real bad and they'll get it.

Down the line the US wants it as well. 

Bernanke likely told his son to get as big as a medical school loan ($400,000 plus) as he can get because the US fed is going to try and inflate out of debt.

Thu, 06/06/2013 - 22:31 | 3632394 Common_Cents22
Common_Cents22's picture

yep, time to lever up and buy a bunch of big fun things on credit!    

Thu, 06/06/2013 - 23:42 | 3632570 JLee2027
JLee2027's picture

I didn't know about his son. Are they clueless? I'd shoot mine before I allowed that. Unless of course, they expect to default.

Thu, 06/06/2013 - 21:07 | 3632114 Atomizer
Atomizer's picture

Who would of thought seizing 2,500 rolls of toilet paper would trigger an economic epidemic.

Venezuela’s Toilet Paper Crisis Igniting Bond Sale Talk

Directly from Huff & Post

Venezuela Toilet Paper Bust: Police Seize 2,500 Rolls From Clandestine Warehouse.

Thu, 06/06/2013 - 21:08 | 3632117 lolmao500
lolmao500's picture

Venezuela is already running out of toilet paper... so their currency will soon be a good substitute.

Thu, 06/06/2013 - 21:09 | 3632120 Its_the_economy...
Its_the_economy_stupid's picture

No worries, Ven got its gold back. When it re-values, it will base on $3500 gold, all is well.

Thu, 06/06/2013 - 21:08 | 3632125 surf0766
surf0766's picture

Dow 38,000

Thu, 06/06/2013 - 22:14 | 3632337 yogibear
yogibear's picture

Bernanke and Dudley (NY Fed) probably are probably jealous that Zimbabwe was able to get their stock market to 50,000.

Thu, 06/06/2013 - 21:10 | 3632132 Monedas
Monedas's picture

In the kingdom of banana leaves .... TP is king !

Thu, 06/06/2013 - 21:11 | 3632134 Monedas
Monedas's picture

Bernanke was seen wrapping his fan blades with TP !

Thu, 06/06/2013 - 21:16 | 3632146 Monedas
Monedas's picture

Bernanke to Merkel:   If you give me a hamburger today .... I will gladly pay you on Tuesday .... 7 years from now !

Thu, 06/06/2013 - 22:07 | 3632314 Imminent Crucible
Imminent Crucible's picture

You're not taking this very seriously.

Thu, 06/06/2013 - 23:36 | 3632562 Monedas
Monedas's picture

I'm as hoarded as I will ever be .... so I'm just enjoying the crescendo of chaos .... there's nothing else to do ?  Freedom is having no more money to buy PMs with !

Thu, 06/06/2013 - 22:32 | 3632399 Common_Cents22
Common_Cents22's picture

for a burger today, he'll pay back in wienerschnitzel.

Thu, 06/06/2013 - 23:45 | 3632568 Monedas
Monedas's picture

Wienerschnitzel is a Vienese pork cutlett, breaded and fried .... most people think it's the 4 chilidogs and a corn dog they see me buy for $5 .... I always say I'm buying lunch for 5 underprivileged kids .... so napkins and condiments for five .... mustard, ketchup, hot sauce, diced onion .... they kids from the ghetto ! If I really had balls .... I'd ask for five bags and five cups of water .... five straws and spoons and forks !

Thu, 06/06/2013 - 21:14 | 3632148 Dr. Engali
Dr. Engali's picture

Growing monetization of fiscal deficits and very weak policy credibility ? Now in the back of my mind this reminds me of some place, but I just can't seem to put my finger on the banana republic hell hole.

Thu, 06/06/2013 - 21:15 | 3632149 xPat
xPat's picture

Relax already. Krugman already said it can't happen.

Thu, 06/06/2013 - 21:19 | 3632165 Monedas
Monedas's picture

Red Toilet Paper .... isn't just for girls on the rag .... it's good for people with blood in their stool .... and for people who spit up blood .... like Hugo Chavez !

Fri, 06/07/2013 - 08:06 | 3633028 GoldForCash
GoldForCash's picture

Don't let me die....oops he should have said less to deal with....

Thu, 06/06/2013 - 21:23 | 3632177 Bear
Bear's picture

Hyperinflation via "very weak policy credibility" ... we need to watch out then

Thu, 06/06/2013 - 21:27 | 3632191 Monedas
Monedas's picture

Beware the Red Tide !

Thu, 06/06/2013 - 21:51 | 3632260 urbanelf
urbanelf's picture

Feel the wealth effect.

Thu, 06/06/2013 - 22:33 | 3632403 yogibear
yogibear's picture

One way for a drastic change in government and burn what's left of the US constitution is to crash the current system. It worked for Russia and countless others. Germany looked to Hitler after facing hyperinflation. The communist and socialist under Obama can pursue their agenda by failing the present one with the help of Bernanke and the Fed members. 

Thu, 06/06/2013 - 22:35 | 3632408 Al Huxley
Al Huxley's picture

Growing monetization of fiscal deficits - that rings a bell, where else have I noticed growing monetization of fiscal deficits....


Related, I wonder if this line going vertical is anything to be concerned about...  CNBC, Bloomberg, help me out here, provide some more of your timeless wisdom....

Thu, 06/06/2013 - 22:40 | 3632420 fonzannoon
fonzannoon's picture

Al me and Kito have an end of the year lunch bet on the dow. I said under 15k. He has over.

You should see this sandwich he wants, "fresh mutz, roasted red pepper, marinated eggplant with balsamic vinegar on fresh italian bread".

Whaddaya think?

Thu, 06/06/2013 - 23:29 | 3632541 kito
kito's picture

Fonz you are making me sooo did you like that DOW recovery today eh??? This is such an easy bet.....and I want to lose sooooo badly.......

Fri, 06/07/2013 - 00:06 | 3632605 Al Huxley
Al Huxley's picture

About the bet?  Or the sandwich?

Fri, 06/07/2013 - 00:12 | 3632617 Al Huxley
Al Huxley's picture

Probably going to have to go with the over, just because the FED's trapped and can never stop buying bonds and let rates rise, and I think they can keep the ponzi going another year, unless things get completely out of control, in which case even collecting on the bet might be a problem ( the way Japan's melting down, maybe they finally are getting to the end of the game.)

Thu, 06/06/2013 - 22:58 | 3632464 DaveA
DaveA's picture

"as money’s velocity of circulation could accelerate very significantly and create negative feedback loops"

A "negative feedback loop" is when more of X leads to less of X.  It's the positive feedback loops (where more of X causes more of X) that we need to worry about.

Thu, 06/06/2013 - 23:11 | 3632499 yogibear
yogibear's picture

How did you like the US dollar's cratering today?

It should wake people up when the US dollar index drops below 60.

Bernanke, Evans, Dudley and Yellen want to trash the US dollar their going to get their wish.

Watch oil and the PM just go nuts.

Thu, 06/06/2013 - 23:19 | 3632517 IamtheREALmario
IamtheREALmario's picture

Lol Goldman? Goldman is smegma.

Fri, 06/07/2013 - 03:42 | 3632789 put_peter
put_peter's picture

Goldman...Here is an example of a Finnish mining equipment maker... Outotec.


Fri, 06/07/2013 - 06:50 | 3632901 css1971
css1971's picture

Clearly you want to be in government bonds at this point.

Fri, 06/07/2013 - 07:57 | 3633005 ZeroPoint
ZeroPoint's picture

Isn't Goldman king of advising the exactly opposite advice?


How can an oil rich country suddenly find itself in the midst of hyperinflation unless 'external factors' are causing it?


Fri, 06/07/2013 - 17:26 | 3635354 notquantumdum
notquantumdum's picture

It's easy for socialists -- who "nationalized" (seized) the oil companies, dramatically reducing their productivity, profitability, and production of oil -- to cause just about any economic calamity to occur given their anti-capitalist policies -- even outcomes that seem rather unlikely.  All they have to do is print too much money after all, and not having the world's reserve currency as the US does, means they are fully subject to the selling pressures of the currency vigilanties with no protection.

$#|t, they can't even keep enough toilet paper on the shelves, apparently.  How's that price fixing working out for you, Venezuela?

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