Venezuela’s Inflation Rate at 7849% Based On More Reliable AirTM’s Black-Market Exchange-Rate Data

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

The accuracy of inflation estimates using Purchasing Power Parity (PPP) depends on the accuracy of exchange rate data. Until further notice, I will use AirTM’s black-market exchange rate to calculate inflation for Venezuela. The charts below are based on AirTM’s data. 

The major reason I have switched black-market, exchange-rate data sourcing is that AirTM is making a market for bolivar-US dollar exchanges. Therefore, it is a source of primary data. And, primary data are superior to secondary data sources. 
 

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 7849%/yr, the highest in the world (see the chart below).

 

Comments

synthetically … Wed, 04/04/2018 - 21:32 Permalink

What is the point in devising an alternative means of measuring the rate of inflation in Venezuela other than to drive home the point that the MIC has been even more effective in undermining the vitality of the economy in Venezuela under socialist Maduro than it was in undermining the vitality of the economy in Chile under socialist Allende (as an underhanded means of promoting regime change)? 

Benjamin123 synthetically … Thu, 04/05/2018 - 06:31 Permalink

These are not kids, Venezuela is not a 1st grader, the USA is not a 6th grader, and nobody is stealing anybodys lunch money. Make an adult argument actually involving the topic.

Venezuelans like to thump their chest broadcasting their power. They refer to themselves as a "world power" and have parades with fat militiamen burning US flags and beat, rape and kill any venezuelan that doesnt toe the line. Thats the innocent "1st grader" in your stupid analogy. And everything thats happening to them is their own fault.

Now the amazing thing in you retarderd analogy is that the 6th grader didnt actually went down there and savagely beat the 1st grader for his lunch money. You'd think that Venezuela was bombed and invaded and got a green zone in Caracas. But turns out the sixth grader just "sneered and smirked" at the 1st grader, acted in an unfriendly manner, and this "hostility" induced the 1st grader to get meningitis, colon cancer and starve to death, thus my remarks on the intrinsic weakness of Venezuela. Kids fighting for money is not a good analogy for the troubles of Venezuels, it doesnt represent reality. A much better analogy would be Mike Tyson looking at a cockroach walk inside a sticky roach trap, getting stuck and having onlookers denounce him for not helping the roach.

This is your typical spic on a power trip, this is the spic mind, king roach abuses his own roach people and asks to be left alone> https://www.youtube.com/watch?v=ajc2Jwk7oqk

"This machete represents the dignity of the panamanian people"

In reply to by synthetically …

synthetically … Benjamin123 Thu, 04/05/2018 - 14:44 Permalink

Let me get this straight. After accusing me of not staying on topic for using a "retarderd analogy" [sic] that does not involve either the US or Venezuela, you, yourself, used an analogy that involves Mike Tyson and a cockroach (neither of which is the US or Venezuela) and then proceeded to quote former Panamanian dictator and CIA informant* Manuel Noriega ("This machete represents the dignity of the panamanian people") presumably because both Maduro and and Noriega are "typical spic[s] on a power trip" with the same "spic mind".

Mmk, no inconsistency there.

 

* https://www.npr.org/2017/05/30/530799394/former-panamanian-dictator-and…

 

 

In reply to by Benjamin123

zimboe Thu, 04/05/2018 - 00:52 Permalink

I heard tell that in Zimbabwe, the currency became so worthless it was cheaper than toilet paper. They're short on toilet paper in Venezuela, aren't they?

Well, not anymore.

...

Fiat is paper. And paper is what you wipe your ass with.

It's just that fricken' simple, mack.

spdrdr zimboe Thu, 04/05/2018 - 03:52 Permalink

Yep, that was during their penultimate inflation (not the final inflation that resulted in $100 trillion bills!).

If I recall correctly, it was around 2002 that the price of a 72 sheet roll of TP suddenly exceeded Z$72, and hence it became cheaper to wipe one's arse with dollar bills.

In 1980 or 1981, the Z$ launched at about $1.50 per $USD.  Collapsed by 1995.

Cntrl P, add a few zeroes, and all is good!

Feel the Bern!

In reply to by zimboe