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Goldman Warns Of Venezuela Hyperinflation Threat
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
KEY FIGURES:
INPC Headline Inflation (May): 6.1% mom vs. Consensus 4.1%
INPC Core Inflation (May): 5.0% mom (36.0% yoy)
MAIN POINTS:
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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Up 72% in which which currency?
Yeah well it doesn't really matter. 600% up since 2012... I doubt the Venezuelan currency went down that much since then.
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
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.
I always wanted a $25 Big Mac combo, now I can get one my next trip down there.
if you pay before you eat
actually, if i were living in venezuela, id get my butt into toilet paper:
http://www.bloomberg.com/news/2013-06-03/toilet-paper-less-venezuela-fueling-bond-sale-talk-andes-credit.html
i dont know about you, but my butt prefers toilet paper over gold........................................
Meh, hire yourself a good looking slave to lick your ass... cheaper and feels better.
They have plenty of Indian paper, their left hands.
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...
Do they print money like Ben does?
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 in....no chance....
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.
now i know why i keep getting information saying Venezuelans will keep the hot Miami real estate market going
They win! Bernanke's going to be pissed!
Way better than the Nikkei or the DOW!
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.
http://stratrisks.com/geostrat/13028
Venezuelans will dig that.
Aaand some food rationing.
http://stratrisks.com/geostrat/13099
I have a feeling someone is softening up a target.
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.................................
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!
Hire a banker from GS, they will fix the problem...
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 !
Causes cancer.
Hyperinflation is on the verge of breaking out in several countries - Venezula, Agentina, Japan, some of SE Asia, and perhaps parts of Eastern Europe.
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.
yep, time to lever up and buy a bunch of big fun things on credit!
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.
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.
Venezuela is already running out of toilet paper... so their currency will soon be a good substitute.
No worries, Ven got its gold back. When it re-values, it will base on $3500 gold, all is well.
Dow 38,000
Bernanke and Dudley (NY Fed) probably are probably jealous that Zimbabwe was able to get their stock market to 50,000.
In the kingdom of banana leaves .... TP is king !
Bernanke was seen wrapping his fan blades with TP !
Bernanke to Merkel: If you give me a hamburger today .... I will gladly pay you on Tuesday .... 7 years from now !
You're not taking this very seriously.
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 !
for a burger today, he'll pay back in wienerschnitzel.
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 !
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.
Relax already. Krugman already said it can't happen.
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 !
Don't let me die....oops he should have said please....one less to deal with....
Hyperinflation via "very weak policy credibility" ... we need to watch out then
Beware the Red Tide !
Feel the wealth effect.
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.
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....
http://research.stlouisfed.org/fred2/series/BASE
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?
Fonz you are making me sooo hungry.....how did you like that DOW recovery today eh??? This is such an easy bet.....and I want to lose sooooo badly.......
About the bet? Or the sandwich?
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.)
"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.
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.
Lol Goldman? Goldman is smegma.
Goldman...Here is an example of a Finnish mining equipment maker... Outotec.
Clearly you want to be in government bonds at this point.
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?
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?