Venezuela’s Inflation – Zero Hedge Repeats the Errors Printed Ad Nauseam in the Financial Press

Steve H. Hanke's picture

Authored by Steve H. Hanke of The Johns Hopkins University. Follow him on Twitter @Steve_Hanke.

With each passing day, I find myself reading wildly inaccurate reports about Venezuela’s inflation. I have already had to take no less than the Wall Street Journal to the woodshed for its misreporting. Now, it’s time for Zero Hedge’s one and only Tyler Durden to take a trip to the shed. On October 27th, he asserted that Venezuela was on the cusp of hyperinflation. What nonsense. Durden’s assertion is dead wrong.

Durden relies on the International Monetary Fund (IMF) for his inflation data, as well as estimates for Venezuela’s inflation. This is a big blunder. The IMF’s reports on Venezuela contain no indication of their methodology. Indeed, it’s clear from reading their reports that they’re using a finger-in-the-wind method to measure current inflation and forecast future inflation. Durden says that Venezuela’s end of year inflation will be 481 percent, a far cry from Venezuela’s current 74.4 percent annual inflation rate courtesy of the Johns Hopkins-Cato Institute Troubled Currencies Project. The Hopkins-Cato project uses changes in black market (read: free market) exchange rates and the principle of purchasing power parity (PPP) to translate exchange rate changes into deadly accurate inflation rate estimates. 

As the accompanying chart shows, Venezuela’s inflation is not about ready to break out in hyperinflation, but has decelerated dramatically from annual rates exceeding 700 percent in 2015 to today’s still punishing rate of 74.4 percent. 

By the way, for those who play fast and loose with the word “hyperinflation,” the hyperinflation threshold is 12,875 percent, year over year. For those who are seriously interested in the topic, see the only documented treatment of all the 56 hyperinflations in the world: Steve H. Hanke and Nicholas Krus, "World Hyperinflations" in Randall Parker and Robert Whaples (eds.) "The Handbook of Major Events in Economic History," London: Routledge Publishing. 2013.

Once again, the 95% rule reigns – 95% of what you read in the financial press is either wrong or irrelevant.

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nmewn's picture

"Now, it’s time for Zero Hedge’s one and only Tyler Durden to take a trip to the shed. On October 27th, he asserted that Venezuela was on the cusp of hyperinflation."

What part of WEIGHING (instead of counting) colored bank notes are you having a problem with?

tarabel's picture

 

 

Let's cut Steve-Os salary by 74% and see how he then defines hyperinflation.

Here is my numberless definition of hyperinflation:

If you need to spend it as fast as you make it and don't care what you buy with it, then you are in hyperinflation.

VenomSnake's picture

Didn't know Hanke posted articles here.  Professor from my alma mater.  Steve is no retard.

 

Steve were you trying to be funny with the odd specificity of the hyperinflation rate? Who cares?

TheRideNeverEnds's picture

First rule of ZH; don't believe anything posted on ZH.

This website is satire.

Clock Crasher's picture

What if the inflation rate is only 12,874% yoy? Is that not hyper-inflation 

 

How about this? The precise definition of hyper-inflation is now to be replaced with "when prisoners and zoo animals are murdered for calories in combination with any inflation rate that requires the adding of many zeros to currency notes"

 

Fair enough?

estebanDido's picture

Is that hyperinflation anything to do with the fact that the olygarchs import everything ? Is an economy run by the parasitick  olys a socialist economy? Does the helping hand of the good USA anything to do with the crisis?

downwiththebanks's picture

Is this economist-speak meant as a correction to the dozens of times ZeroHedge's oligarcy-pimping editors said that a hamburger was selling for $1000?  Is it a sort of apology for serving as CIA's running dogs?

The question isn't whether inflation exists:  the question is why.  The suckpumps of the CIA and their corporate fascist pals blame it on the weak, vulnerable underdeveloped state rather than the parasitical system that has underdevelopmed them for centuries.

Because ZeroHedgers really know their history.

hongdo's picture

I don't know.  Seems to me that when you start weighing the currancy instead of counting it, it's hyper.  I guess economists would weigh the currancy to .00001 gm.

Codwell's picture

Oh these figures sound much better, I think I'll move to Venezuela.

shallow_explorer's picture

"By the way, for those who play fast and loose with the word “hyperinflation,” the hyperinflation threshold is 12,875 percent, year over year." 

What, no decimal point?  Surely to be accurate you need three digits right of the decimal point.  What a joke.

MoonSun's picture

The chart shows that inflation in Venezuela reached an average of approximately 600% for a whole year on 2015. That is simply total confiscation and annihilation of savers. I mean, I don't care if inflation in Venezuela is now only 74%, because savers were already utterly robbed just one year ago.

As of 2016, there is nothing worth of confiscation on savings accounts, so the robbery by the Venezuelan government will be virtually the same now with a 74% or with a 12,475% inflation rate.

 

Dark Daze's picture

Yes, and so eventually, all the government has to do is compensate those loses over time, which it will, with an oil deal forming up.

SubjectivObject's picture

So, quesstimating here: My 2013 Snickers Bar, out of a Venzuelan airport machine, in Jan13 is 1 Lollar in bolshitliar equivalents.

After an average 200% inflation for 2013, in Jan14 the SB now costs 3 Lollars.

After an average 200% inflation for 2014, in Jan15 the SB now costs 9 Lollars.

Hold my hats, and taking an average 500% inflation in 2015, in Jan16 the SB now costs 54 Lollars.

Breathing easy again at about 200% inflation over 2016, the SB now costs 162 Lollars.

And my Venzuelan income has gone .... where exactly?

I shoulda gone long Snickers bars stored in argon, it woulda paced gold.

hoagy goldmikel's picture

he calls is own website 95% irrelevant . That's what I call transparency , so I'll keep tuning in and reading knowing that 95% of it is incorrect or irrelevant.

 

peace out...

quesnay's picture

Who the hell is this retard?

100% inflation is 50% theft (every year).

1000% inflation is 90% theft.

10000% inflation is 99% theft.

Inflation must be 12,875% to be considered 'hyperinflation'. Down to the fucking single digit even! Wow. If that doesn't demonstrate the ridiculous intellect of this pencil pushing apparatchik I don't know what does.

Go fuck yourself. Who the hell made you academics the 'gate-keeper' of definitions. The arrogance. Words mean what they come to mean through common usage. No more, no less. Your authoritarian approach to 'own' meaning is ridiculous nonsense.

Venezuelan inflation has gone crazy. Venezuela is on the verge of being a failed state. Seriously, do the semantics really matter that much? Ask a Venezuelian. Do they care that their plight doesn't meet the arbitrary threshold of some ivory tower asshole, safely sucking on the government teat a continent away? Somehow I doubt it.

 

Knave Dave's picture

I certainly know that, if I were in an environment that was inflating 100% a year, that would feel hyper enough to me. Now, if I was in one that was inflating 12,000% a year, I'd consider myself in a gold mine so long as wages kept up with the cost of living because in about three years one month's salary would pay off my home mortgage.

Dark Daze's picture

Excellent point. There is an upside to every downside.

gmak's picture

Hyperinflation occurs when no one wantss the currency.  Last I looked they couldn't import toilet paper. huh. Guess they can't buy dollars for trying.

medium giraffe's picture

"The IMF’s reports on Venezuela contain no indication of their methodology."

 

((CPIt/CPIt-1)-1)

Bwana's picture

I just took the time to find out what the definition of hyperinflation actually is. The encyclopedia of economics says it is when inflation hits or exceeds 50% for a month or per month.

quesnay's picture

Which compounded monthly is 12974% annually. Maybe that's where his ridiculous number came from? A totally arbitrary cutoff of 50% a month compounded over a year? He should have just said that.

Demanding that hyperinflation must exceed the threshold of 12,875 or "it's not hyperinflation", makes him look like a complete idiot. If he had said 50% inflation a month then we could plainly see the totally arbitrary nature of this threshold.  I mean why not 40% a month (5669% per year) or 30% a month (2329% per year) and so on. The cutoff is arbitrary. In practice hyperinflation means "unsustainable inflation". That's really all that is important about it. It's unsustainable. It will result in collaspe. That's all that really matters.

gdpetti's picture

But in a controlled media with a controlled central bank, that controls all the rest, essentially... the data is usually wrong on purpose. There was an article here (I think) that pointed out that some items are inflating excessively - health care, education - while others are either flatlining or deflating to some extent.

Venezuela's real problem is that the USA is making covert war on them, ever since 'our trained man' Chavez joined the people and got rid of our team in that country... and so our policy has been to destroy them ever since, same with Russia, China, Iran etc... anyone that doesn't bow down and follow orders is a clear and present danger to the evil empire, and there's always an evil empire here in Purgatory... that's where we reside... one level or dimension of the left side of the Tree of Life... like Birkeland currents, positive and negative energy flows together throughout the universe, all an expression of consciousness at higher levels radiating out and back in along the axis of the archetypes. Simple, no?

Maduro is a common man, not ready to run the country. He's doing his best, but like other BRIC countries, the engineered collapse of the oil market is hurting them badlly, just ask the House of Saud... and we can ignore their Jewish origins if you prefer, but actions do speak loudly than words.... as it is by their 'fruits' that they are known. Can any of us say we'd be doing a better job with the situation in Venezuela as the CIA and all their 5th column types try to false flag a takeover such as they did recently in Brazil and Argentina? A global recession remains in play and only the USA has the luxury of a global currency, something that won't last much longer, as most of us well know.

Maduro has to deal with an engineered opposition that is directly controlled by Langely, who also controls much of the busiess activity in the capital area, which is the state in most of Latin America.. as how often do we ever see such rallies for or against in any other urban area in those countries? So, the press is of even more importance, which is why we've been pushing our fake democracy ideas of a 'free press', as in one we and our 5th columnn friends in country, can more easily buy up and control in oppostion to the state.

THis is the game in PUrgatory... this is how we learn.. we learn through pain... after getting kicked in the groin enough times, we try to move out of harm's way, but the goons keep coming for you, so you either learn to hide or fight back.. Maduro and his party haven't yet learned how to fight this war... I'd suggest a better line of communication with Putin, whose Russia had a direct lesson in this a couple of decades ago... Castro could help, but Putin and Xi have a fresher experience to convey... Maduro needs help, he really isn't up to the job... but then Putin wasn't either... but he learned how to 'dance with the Devil' until you can stop... not easy... Xi is doing the same dance.

As fo this hyperinflation? Most people in some of these countries learn not to deal in cash.. bartering picks up... the precious metals, if they can get them in some form.. or local/regional forms of exchange, same as always. Hyperinflation is an urban concern much more so than a rural one. Whether it's 1200% or 50%, the result is much the same for everyone involved... it makes predatory jackal's work easier to operate... but on the other hand, it helps expose them as well... as happened in RUssia.

downwiththebanks's picture

Controlled media is absolutely right--the same ones that daily pimp the CIA loving fascist oligarchy and try to stimulate coup after coup.

90% of the time, they're ZeroHedge's source for anti-Venezuelan, pro-regime change propaganda.

Lux Fiat's picture

I've heard of the saying "can't see the forest for the trees".  I think this post takes it to a new level  - "can't see the tree for the leaves".

 

Perhaps some member of academia has defined hyperinflation as inflation above 12, xxx%.  However, my non-academic guess is that when inflation breaches 50 to 100%, the damage to a society is pretty damn bad, and a lot of things that we take for granted in a "civil" society go out the window. 

http://dilbert.com/strip/2009-09-20

rosiescenario's picture

Let's just call it semi-hyperinflation......or moderate hyperinflation defined by "It takes 1 days wages to buy enough TP to wipe your ass"...of course in Venezuela's case, there is no TP to be had....

 

and really: " the hyperinflation threshold is 12,875 percent, year over year."....surprised that number didn't carry 2 decimal places....and the academics wonder why those with some horse sense disparage them.....

bardot63's picture

Hey, Steve. We don't need IMF numbers to interpret pix of a couple hundred thousand people plowing thru trash heaps to feed their kids. Or a couple hundred thousand storming the palace with pitchforks. What would they know about exchange rates anyway? 74% is OK with you?

May I speak for many ZH readers when I say Fuck You. And by the way, asshole, Tyler Durden is a collective identity. Next time do your homework. There's no one at ZH named Tyler Durden...the name is fictional, you fucking moron.

niemand's picture

He should be paid in Bolívar. I'm quite shure he would shut the fuck up. moron

Lyman54's picture

Any time the rate of inflation exceeds the rate of GDP growth is bad news in my opinion.

Dead Canary's picture

Well gosh. That settles that I guess.

OpenThePodBayDoorHAL's picture

Gee good news, from the chart it looks like the inflation rate is only around 70% per year.

vegas's picture

If it comes down to the Tyler Durden's versus university types, I'll go with Tyler every time; fucking academic rats are everywhere.

 

www.traderzoogold.blogspot.com

inosent's picture

OK, this hanke guy gets the f- off award for the day. Some would argue that any inflation rate under the current fraudulent money scheme is bad. Period. The money changers strip mine us @2%+ per annum, but over 100 years that 200%. And I am sure we all feel great about that. But here comes Venezuela weighing in at 80% inflation rate per annum and this hanke azhl wants to split hairs, but stupidly defining hyper-inflation as 12,000 percent. what a dick.

theondoxazo's picture

Frankly, my BS detectors go off on ZeroHedge all the time.  What I appreciate about the Tylers, in this situation, is that they published this commentator on their webpage, prominantly, even though he was criticizing them.  Publishing both pro and con opinions is lauditory!

Raging Debate's picture

Good point. One hand clapping would not allow for improvement of info so good on ZH to publish critique for debate. 

still kicking's picture

So do we just call it run away inflation?  To me that would be somewhere between 20-100%, after that it's all really just "bend me over sans lube inflation".

Old Codger's picture

My BS Detector just went off!

One-Eyed-Thong's picture

if i held gold in venezuela... would i be rich in venezuela now ?

gonetogalt's picture

No, but you'd have a store o f value. Venezuela has beau coup gold, just like Guyana. The venezulanos sneak over the river, buy in Guyana and haul their smuggled shit back to sell for more gold. The gov doesn't like this, so they shoot at these guys and demand they sell their mine production to the gov. And always have, far pre-Chavez.

If I were young again, I'd be a smuggler rather than a miner.

 

quesnay's picture

No. But unlike everyone else your wealth would have stayed the same while everyone else's went down the toilet. So I guess in that sense you would be 'relativily rich'. Relative to your poor sap fellow citizens that is.

You don't buy gold to get rich. You buy gold to protect savings against this kind of crap.

UndertheDRADIS's picture

According to Mrs. UndertheDRADIS, you would have your house broken, the gold stolen, and be killed. Before you use the word "Bank", the banks were nationalized by the Chavistas and the employees were all replaced with loyal party minions.

The Saint's picture

No.  You would still be One-Eyed-Thong.

 

Not My Real Name's picture

One gram; no. One ounce; absolutely. (At least compared to your fellow Venezuelans.)

Boxed Merlot's picture

...Once again, the 95% rule reigns – 95% of what you read in the financial press is either wrong or irrelevant...

I should screen shot the news column on the FINVIZ site this morning. Not a single headline or mention of the blockbusting election altering FBI development from the close of market Friday is included in possible market repercussions. I was first going to say 95% is way too high, now I think it could be worse than calling 700% "hyper".

johnjkiii's picture

I suppose the new 20,000 Bolivar paper being printed is just for fun.LOL

debtor of last resort's picture

I saved 20.000 bolivars and all i got was this lousy cat.

Oreilly's picture

Well I'm glad that's cleared up.  The current inflation rate of 80% (annual roughly around 200%) is liveable and a mark of excellent governance in the Socialist Paradise of Venezula.  Shame on you Tyler for using the word "hyperinflation" to describe such a liveable situation as a meager 200% inflation, which we all know is no where near the true hyper threshold of 12875%.