A New Record High - Venezuela's Inflation Climbs Above 7,000%

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 worth less, and with its collapse, Venezuela is witnessing today the world’s worst inflation. 

The Fall in the Value of the Venezuelan Bolivar

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. We measure the monthly and annual inflation rates on a daily basis. We measure. We do not forecast. 

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.

We 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. Today's implied annual inflation rate is 7155%/yr (see the chart below).

Venezuela's Annual Inflation Rate

Most musing about Venezuela’s inflation are just that – musings, finger-in-the-wind FORECASTS. The IMF FORECASTS Venezuela's inflation for 2018 to reach 2350%. This musing is way off the mark. Indeed, annual inflation today is MEASURED at a new high of 7155%, which is well above the IMF FORECAST for 2018. I do not report FORECASTS, but real MEASUREMENTS. 

Comments

nsurf9 Thu, 01/25/2018 - 12:09 Permalink

Who cares, when Maduro and the Venezuelan media can point to another higher (er, er, er, er. . . ) record IBVC index.  All their 401k's must doing outstandingly well.  Why just today the Venezuelan IBVC index is up 15%, 128% year to date, and drum-roll  . . . 10,095% for the last year.

It not an asset or stock market bubble - its a currency FUBAR. Sort of like measuring the distance from Washington to NY, NY in millimeters instead of miles and saying its now much further away.

Fact is, the Venezuelan central bank doesn't give a $hithole that they have stolen the value of their citizens' currency blind and that they're starving and dying in the streets - you know, just like America. 

https://www.bloomberg.com/quote/IBVC:IND

pirgah Thu, 01/25/2018 - 12:31 Permalink

Zero Hedge loves to send news from Venezuela, a shit country. Why? Is the oil stupid. Sometimes I think that Zero Hedge receives some money from Brothers Koch. ZH is "sooooo"
interested in Venezuela. Why? Why they don´t make a series of news showing homelessness in all USA states?

pirgah surf@jm Thu, 01/25/2018 - 12:50 Permalink

How much oil are in the Orinoco? Very near USA, huh? Very near than Middle East. You don´t understand that ZH shows Venezuela, again a shit country, although there are more problems on other countries?

In reply to by surf@jm

pirgah nmewn Thu, 01/25/2018 - 13:29 Permalink

Have you travelled once in your life to India? A big country with nuclear power and people hungry die in the steets. Several other die from thirsty on summer. No sanitation, powerty, but is a powerful nation. The streets smell like shit. Socialism and capitalism two faces of the same coin.

In reply to by nmewn

Benjamin123 pirgah Thu, 01/25/2018 - 14:37 Permalink

The good thing about capitalism is that those scarce talented individuals buried within shithole societies can freely associate with each other and flourish. This is why in shithole countries you can find towns and neighborhoods as good as anything in the first world.

When smart indians associate with other smart indians and smart foreign partners, they make magic. Problem is we are talking about 1% of the population, the same ones that tend to move to the USA, so india is 99% shit rather than 100% as would be in communism.

In reply to by pirgah

DEMIZEN Thu, 01/25/2018 - 13:57 Permalink

it is not that hard to curb a moderate or severe inflation. the tricky part is how to print money, and not financially upset "the class". 

"the class" must stay on top even if it takes 20K% annual inflation rate total capital flight, starvation, whatever...

Benjamin123 DEMIZEN Thu, 01/25/2018 - 14:49 Permalink

I dont know what you mean by "the class" in Venezuela. The traditional venezuelan oligarchies have been thoroughly fucked. The 10% class has been ruined, the 1% class humiliated and the 0.1% kicked out of power.

Neither Maduro nor Chavez belonged to any kind of connected local oligarchies. They were mestizo and zambo commoners, the kind of people you see crossing the mexican border on the back of a pickup truck and born to be abused by their betters, but overcoming all odds they took the power and retained it for 20 years. Such things happen in history, the Romanovs were not replaced by some competing royal house, the white south africans did not remain in power behind the scenes, the french royalty was beheaded and never recovered. Sometimes the elites do get fucked.

The venezuelan elites made too many mistakes>Flaunted their wealth on TV, flaunted their hate in public, allowed commoners to become officers in the armed forces, pardoned Hugo Chavez after his failed coup in 1992 instead of executing him on the spot. I could go on.

The commoners have never had it as bad as now but i guess revenge felt good for the first 10 years or so.

In reply to by DEMIZEN

DEMIZEN Benjamin123 Thu, 01/25/2018 - 18:59 Permalink

They make mistakes and they fall. the bigger the harder. "the class" is the group that controls the means of production, media, and holds the social tissue of the state together.  My comment was in regards to inflation in general, I don't pay much attention to Venezuela. If the class in Venezuela is a nonexistent or postcolonial crowd short profit oriented road gang that filled the vacuum after the capital flight, give them 10 years or a generation span to cure the structure. 

 

you are likely right. your view seems to fit the description of a typical postcolonial south American society.

In reply to by Benjamin123

venturen Thu, 01/25/2018 - 16:01 Permalink

And the Democrats still love the Big V...and think how great the stock market does....7000% would be just staying even.

Bernie still thinks it is the best place...and wants to make America just like it!

alexcojones Thu, 01/25/2018 - 16:13 Permalink

I lived a year in Brazil when the annual inflation went from 1,400% in 1989 to 33,000% in 1990.

And then higher the next year. Possibly USA will suffer the same after DeDollarization.

alexcojones Thu, 01/25/2018 - 16:19 Permalink

    "I lived in Rio de Janeiro, Brazil. I spent a year there trying to be Paul Gauguin but found instead that I was a lesser artist: myself. At that time--1989/1990--few tourists traveled to Brazil. Rio was considered the most dangerous city in the world, with around 2,000-3,000 murders annually. If that weren't enough, inflation for 1989 was about 1,400% annually, as I recall. Each day you would see the value of the currency plummet in myriad ways. The daily newspapers (there were six) carried headline announcements, of course. Items in stores were often marked with three or four different prices and often whole shelves were emptied of a single item because smart shoppers knew the price would soon double.  

     "I would walk or bus wherever I went.   At the bus stop, I'd see money--coins & currency--scattered in the gutter. For the first couple of days, I'd pick up large and shiny coins and stare at their dates.  A former coin collector, I'd wonder why a coin minted only a year ago now lay in the gutter. Valueless, my Brazilian friends would tell me, like the government.  They had a few wonderful words--"safados"--scoundrels or "ladrones," which meant thieves, to classify their political leaders.(Just like ours) 

   "At the time I arrived, you received three Cruzados Novo for each American dollar. This new "novo" cruzado was stamped (see photo) with a triangle designating its new value--or devaluation--over the old 1,000 cruzado note and reminded me of the Doctor Seuss story of the Sneetches, who had stars imprinted on their bellies so they too could attain a new value.  In 1989, the Brazilian government decided to drop three zeros and change the name of the currency henceforth to Cruzado Novo. Since then the currency has been changed yet again to the Real.  

    "It seems Brazil was busted from too much spending, the same sort of deficit spending America is doing in a big and scary way.  All that borrowed money by Brazil, and the massive debt incurred, landed squarely on the shoulders of the average citizen when payment came due.  To the average citizen, these were scary, stressful times. Paper money became a roller coaster ride; vendors, landlords and even prostitutes preferred US dollars. Wages were adjusted constantly to keep up with the inflation rate.  

   "Frequently, on my walks, I would see large paper bills, 50,000 or 100,000 "old" Cruzeiros, in the gutter, but after awhile I never picked up any more money. I found it wasn't even worth a fraction of a cent. Likewise, at the beach you could see shiny coins roiling in the surf but no Brazilian bothered to retrieve them."

Money--Funny, Scary, Paper Money

 

 

Consuelo Thu, 01/25/2018 - 18:28 Permalink

"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."

 

If anyone has read the author's previous work here, there is no need to explain further...

All I would add, is that as amusing it must be for someone in such a high place to point fingers at Venezuela, the U.S. is not immune to a similar fate.   In fact, as geopolitics is clearly pointing out, such a potential fate isn't that far away at all.

Benjamin123 Consuelo Fri, 01/26/2018 - 07:02 Permalink

Almost everything in venezuela is imported. It is not a diversified economy, it lives by exporting oil and buying everything else. It used to produce most of its food back in the oligarchic era and assemble cars at Ford and GM plants, but land confiscation, price controls and capital controls (a form of social justice) ended that, so now its just oil.

So whenever you buy food, or a car, or a set of cutlery, in Venezuela, you are buying from foreign suppliers that wont accept bolivars. You may pay at checkout with bolivars, but the merchant has to exchange right away to US dollars to pay his suppliers. The bolivar is just an intermediation layer, it doesnt circulate like a normal currency, it comes out of the central bank and comes back right away bidding for reserve dollars.

Foreign suppliers want US dollars or at least some currency that can be freely converted to their own national currency. A Russian supplier will accept rubles but Venezuela does not have rubles, the indians will take rupees but Venezuela has no rupees. Only bolivars, and theres nothing you can do with bolivars except bidding for dollars at the central bank auctions, not even buying venezuelan oil, because PDVSA will only take payment in hard currency (usually US dollars, but also euros, rubles, rupees, etc), they wont take neither pesos nor their own currency. The government of Venezuela has infinite bolivars, they wont sell precious oil for a currency they already have an infinite supply of.

In reply to by Consuelo

Paracelsus Thu, 01/25/2018 - 18:58 Permalink

 I have often wondered at the Argentinian Junta Malvinas/Falklands war, as an attempt to misdirect the public from the mismanaged economy and the dirty war "disappeared". The Russian /Trump psy-ops project seems a similar misdirection. And 9/11, and the wars since then. Reports have since been circulated that the Bankers were rattled by the "Occupy Wall Street" crowd. This has been the first instance I can recall where a POTUS has been declaring "Fake News" and over and over he has been proved correct.

Sorry,Off Topic as usual. Venezuela. Default on the debt. Restructure.Issue new currency.Free and fair elections.

I suspect they are looking at a military coup in the near future,although I can't see how that would inspire overseas investor confidence. I hate to see societies lurching right and left. Big waste of time and energy, and lives.

The first thing they do is nationalize the oil resources. Works great every time.

During the sixties in Angola, the marxist gov't was receiving royalties from the Gulf oil corp. platforms off-shore in the Cabinda province. The marxist MPLA forces were protecting the oil platforms from CIA financed Savimbi speedboats rushing around firing RPG's. The sh@t doesn't get any weirder than that. Now we have a serious financial commitment in Afghanistan protecting the opium harvest. This area also has proven mineral wealth underground to be exploited.A region of warlords mainly....

I don't see how the Venezuelan people can survive this much longer. Trump will need a bigger wall.

VWAndy Fri, 01/26/2018 - 13:51 Permalink

 Best be able to barter if the MOE is busted. They could kill ya for your gold and get it. Not your skills. Thats are true power.