Venezuela's Grim Reaper: A Current Inflation Measurement

Steve H. Hanke's picture

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

The Grim Reaper has taken his scythe to the Venezuelan bolivar. The death of the bolivar is depicted in the following chart. A bolivar is worthless, and with its collapse, Venezuela is witnessing the world’s worst inflation. 


As the bolivar collapsed and inflation accelerated, the Banco Central de Venezuela (BCV) became an unreliable source of inflation data. Indeed, from December 2014 until January 2016, the BCV did not report inflation statistics. Then, the BCV pulled a rabbit out of its hat in January 2016 and reported a phony annual inflation rate for the third quarter of 2015. So, the last official inflation data reported by the BCV is almost two years old. To remedy this problem, the Johns Hopkins – Cato Institute Troubled Currencies Project, which I direct, began to measure Venezuela’s inflation in 2013. 

The most important price in an economy is the exchange rate between the local currency and the world’s reserve currency — the U.S. dollar. As long as there is an active black market (read: free market) for currency and the black market data are available, changes in the black market exchange rate can be reliably transformed into accurate estimates of countrywide inflation rates. The economic principle of Purchasing Power Parity (PPP) allows for this transformation.

I compute the implied annual inflation rate on a daily basis by using PPP to translate changes in the VEF/USD exchange rate into an annual inflation rate. The chart below shows the course of that annual rate, which last peaked at 2662.03% (yr/yr) in the beginning of October 2017. At present, Venezuela’s annual inflation rate is 2385.76%, the highest in the world (see the chart below). 


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groundedkiwi's picture

Deep in the heart of Americans, they know they are Venezuela, unless they protect the dollars hegemony.
There will always be approval of wars, because the alternative is becoming Venezuela.

galant's picture

Why is it again that the United States has to impose sanctions warfare on Venezuala and do everything within US power to destroy its economy?

Obama and now Trump see some threat?

 

silverer's picture

Sanctions punishes the population. The US are experts at punishing whole countries. They bomb, destroy, take over. Really good at it. Been perfecting it now for at least 72 years.

divingengineer's picture

Because nobody likes a loser.

When you have money, everyone wants to give you more money. When you’re broke, nobody will give you the sweat off their nuts.

Might not be pleasant, but it’s the reality of the thing.

VWAndy's picture

 Best be getting into a barter friendly state of mind folks. The MOE is busted! Not the trading system, only the Medium of exchange. People will figure it out quick. Or not.

  Me I got the skills. Its kinda on you to figure out how to pay me. Or not.

damicol's picture

90,000 plus by yr end.

 

Guarantee it, simple math

platyops's picture

The fed is trying, really trying to continue to convince the American public that everything is ok.

But our congress over the last 50 years has been selling us out. For their own gain.

It will end badly, but when is a guess.

My guess is right after Christmas 2017!

The SNAP program will be cut off and the DINDUS will be hungry!

 

Time for the race war. Sad as that may be, I see no other way out for America. It is time to follow the philosophy of Ayn Rand!!!

Buck Johnson's picture

This will end bad, I agree.

 

new game's picture

dolla regime days are numbered. count on it. MIC to intervene. count on that too.

banker wars...

SSM

hendrik1730's picture

Proves once and for all what the true value of fiat currency is : ZERO. Comes for all of us - US$, GBpound, Euro, Yan, .... it's PAPER folks.

gmj's picture

Is there anybody here from Venezuala?  How do ordinary people survive there?  It seems nearly impossible.  Does the price of groceries track the bolivar, or the dollar?

Benjamin123's picture

Im from Venezuela. It was always difficult but now its just too difficult. It isnt like everybody is starving, but most people are on a forced 1200 calorie diet. The population has lost about 10 kilos on average. This is not sustainable so the poorest people have started to stampede towards Colombia and Brazil. Nobody will just stay still and wait for death. Venezuelans used to be chubby like mexicans, now they are resembling somalians.

The government sorts of help some people by selling them food at affordable prices (gov cheese program). Its affordable food but very scarce.

The current situation will come to an end or the people will cross the border en masse.

Groceries track the dollar. The bolivar is meaningless, i mean the tags are in bolivars but they change them every day according to the exchange rate. Everything is imported and paid with dollars, the government imports some food and sells it a loss, but they cant import enough. They thought they could destroy the local landlords and make up the shortage with imports, but they cant.

divingengineer's picture

I’m curious, how does inflation affect rent?
You must have lease contracts, you’d be paying peanuts for rent after a few months of 500% inflation. I’m sure the Shylock landlords here would still be able to bleed you for every last cent somehow.

And wages, they surely can’t be tracking inflation. How could you live on a salary/25,000 to a dollar? Especially when imported items are probably bought with dollars.

Benjamin123's picture

As far as i can tell salaries are pretty symbolic at this point. I mean its pretty ridiculous when a month's salary buys you a happy meal. I for one have been sending my family a bit of money, which i never did before and isnt any kind of fortune but worth years of local salary.

Dont know about rents. Renting has never been a popular thing in Venezuela, because its really hard to evict squatters. 

SILVERGEDDON's picture

But, I guess gun control is working out real good for the fuck heads in government. 

SILVERGEDDON's picture

Well, that fucks up my retirement plans.

Go down there, and end up invited to a bar b q, only as the entree on a spit, not as a guest. 

Mustafa Kemal's picture

You can buy a nice house there for $20K last I checked. A mansion for $50K.Go there when this blows over.  But I suspect carpetbaggers will not have too many friends 

jmack's picture

you cant own anything there, maduro will take it when he is good and ready.  so unless you have the billions to become one of the inner party members, you are chattel.

Benjamin123's picture

Bullshit. Im from Venezuela and an apartment in Caracas is at least 100K, down from 200K. You are full of shit, how would you even "check prices" from Gringolandia?

Both property and groceries in Venezuela have relatively stable prices in dollars. Now, because its such a shit country and everybody wants to leave prices are down from their historical highs, but thats independent of the hyperinflation.

Uchtdorf's picture

What's the best way for a gringo like me to help the average citizen in Venezuela? Is there a reliable organization down there which pools donations to distribute to the most destitute of people?

silverer's picture

I would think the prices would be stable in dollars. Keep in mind you still have inflation with dollars, although it's much higher (of course) with the bolivar. Anyone is Venezuela that bought silver or gold five years ago would be in great shape now. Don't know what the government says about ownership of PM's, but if you have it, you will have food.