Venezuela's Inflation Surges to A New High: 8321%

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

After Venezuela ditched its multiple exchange-rate system and announced that it would introduce a new cryptocurrency (read: the petro), the hapless bolivar staged a bit of a rally. Many people concluded that the rally was the result of these two policy changes. While that conclusion might hold some water, it isn’t much.

The bolivar’s demand and supply fundamentals point to the source of the bolivar’s recent temporary strength. It’s tax season in Venezuela, and people pay taxes in bolivars. So, there has been a seasonal increase in the demand for bolivars. Instead of selling their ever-depreciating bolivars into the black market, many bolivars have been sent to the tax collector. With the tax season ending in March, the temporary surge in the bolivar demand has petered out. Not surprisingly, the bolivar is plunging again.

The Grim Reaper has taken his scythe to the Venezuelan bolivar. The death of the bolivar is depicted in the following chart. On the black market (read: free market), a bolivar is worthless, 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. However, 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. Nonetheless, the last official inflation data reported by the BCV is still 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 8321%/yr, the highest in the world (see the chart below).

Venezuela's Annual Inflation Rate

Comments

hendrik1730 Davidduke2000 Fri, 03/23/2018 - 12:07 Permalink

Correct.

It's not "socialists", "communists", "Trump", "democrats" ..... it's just called GOVERNMENT.

You know, that Medusa-like organisation that sets up laws and rules to render theft end plunder "legal" under the guise of "freedom and care for the citizens" and renders its citizens teethless.

"Government" is the #1 public enemy of a population. Everywhere.

In reply to by Davidduke2000

Pickleton Davidduke2000 Fri, 03/23/2018 - 13:04 Permalink

"and you dare utter the word socialist"

 

Well duh, yes.  What, you think this is a "capitalist" system?  Um no, this is the progressive dumbocrat left's system, and it's has been since 1900. It has little relation to "capitalism" and it's not surprising to those paying attention that the country has been in collapse since at least 2000.

 

In reply to by Davidduke2000

silverer Fiat Pirate Fri, 03/23/2018 - 08:50 Permalink

Give those folks four or five more years to decide if it's really as great as they thought it would be. Like most sheeple populations, most probably could not tell you what socialism is. In five years, you tell them "you have just lived under socialism for the last five years", and they will say "So THAT'S what socialism is! Socialism sucks!" Yes, it's a hard way to learn, isn't it?

In reply to by Fiat Pirate

JibjeResearch Fri, 03/23/2018 - 10:48 Permalink

Inflation comes from two sources: over supply of money and under supply of goods/services. 

Socialism, capitalism, and so on... don't matter.  It's just a name.

Chief Joesph Fri, 03/23/2018 - 11:10 Permalink

Take a good hard look America. The writing is on the wall.   The U.S. will have similar figures by 2019, when the Petro-yuan kicks in on the 26th of March.  Most countries in the world are preparing to abandon the dollar for the yuan.  It's also why they are busy repatriating their gold reserves back home instead of keeping the gold in a vault in New York.  The dollar will eventually take its place next to the Bolivar as the world's worst currency to hang on to, and the U.S. may substantially exceed Venezuela in hyper-inflation of 8321%, since it has a $21 trillion debt, and over $100 trillion in unfunded liabilities.  In comparison, Venezuela has nowhere near the debt America has, (just $5 trillion total).  So, it's very likely the dollar will go down the toilet very fast, when other countries stop trading in dollars and start using gold-backed yuans instead. You will then see broke Americans crying and rioting in the streets, unable to pay for the basics, like food or medicine, or much less, for their opioid addiction.   If anyone wants to bet against this, please do your betting in either Swiss Francs, Chinese yuans, or in gold.  No dollars or Bolivars please.

Salsa Verde Fri, 03/23/2018 - 13:38 Permalink

Why don't Bernie Sanders' supporters go down to Venezuela and lend a hand or perhaps some of their money?  Perhaps they could work for free in farm fields or maybe fixing oil platforms (seized from US companies) that have fallen into disrepair?  Isn't that what socialists do, help each other out?