Venezuela's Episode of Hyperinflation Reaches New "Highs" - Prices Double Every 17.5 Days

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

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 data are available, changes in the black-market exchange rate can be reliably transformed into accurate estimates of countrywide inflation rates—if the annual inflation rates exceed 25%. The economic principle of Purchasing Power Parity (PPP) allows for this transformation.

Using this principle, I compute implied annual inflation rates using high-frequency data and report them on a daily basis. For the countries that I monitor daily, the table below shows the annual rates for the eight countries with the highest inflation rates in the world.

At present, Venezuela is suffering from hyperinflation. It holds down the top spot on my list, with an annual inflation rate of 16,428%. Note that my measurement of the implied inflation rate is much higher than the widely reported International Monetary Fund’s (IMF) end-of-year forecast of 12,870% (13,000% rounded). I measure; the IMF foolishly forecasts. A comparison of my measurements with the IMF’s projections for the other seven countries’ year-end annual inflation rates shows that the IMF's projections are way off the mark. Indeed, my current measured inflation rates for “today” exceed those that the IMF projects, with the exception of South Sudan's, by a wide margin. Given these large divergences and the IMF’s poor record of forecasting inflation in countries experiencing elevated inflation rates, one wonders why the financial press reports the IMF forecasts, and why it does so with such reverence.

Let’s take a closer look at just how rapidly Venezuela’s prices are rising, and how they stack up against other hyperinflation episodes in Latin America (see the table below). Last month, the monthly inflation rate—yes, the monthly—reached a new high of 234%. At this rate, prices doubled every 17.5 days.

The table below is a condensed version of the Hanke-Krus World Hyperinflation Table for the episodes of hyperinflation in Latin America. Contrary to popular opinion, there have been relatively few hyperinflation episodes in Latin America: only eight, with two of them occurring in Peru.

Venezuela’s death spiral continues to spin, as hyperinflation slashes the value of the bolivar. We can’t forecast the course or duration of Venezuela’s hyperinflation episode, but unless the government dumps the bolivar and replaces it with the greenback, as the Venezuelan populace has already done, this episode of hyperinflation could easily become much, much worse.

 

This piece was originally published on Forbes.com.

Comments

JLarryL Zero Point Sun, 05/20/2018 - 09:29 Permalink

Venezuela has been most definitely mismanaged into disaster, but the USA has done its share to push this result. Notice how the hyperinflation surged recently?

That’s what began to happen in 2017. Last year, Venezuela’s export revenues rose from $28 to $32 billion, buoyed by the recovery in world oil prices. Under normal conditions, a rise in a country’s exports would leave it with more resources to pay for its imports. But in the Venezuelan case, imports fell by 31 percent during the same year. The reason is that the country lost access to international financial markets. Unable to roll over its debt, it was forced to build up huge external surpluses to continue servicing that debt in a desperate attempt to avoid a default. Meanwhile, creditors threatened to seize the Venezuelan government’s remaining revenue sources if the country defaulted, including refineries located abroad and payments for oil shipments.

U.S. economic sanctions have stopped Venezuela from issuing new debt and blocked attempts to restructure its existing debt obligations. Major financial institutions have delayed the processing of all financial transfers from Venezuelan entities, significantly hampering the ability of Venezuelan companies to do business in the United States. Even Citgo, a Venezuelan-owned subsidiary that owns 4 percent of the United States’ refining capacity, hasn’t been able to get U.S. financial institutions to issue routine trade credit since sanctions were imposed.

The Trump policy in action.

These are the acts of war we do daily, spreading misery and violence in the cause of the Empire. But plenty of Americans like to point fingers and forget.

Shall we blame the North Koreans for hoarding nuclear weapons?

 

In reply to by Zero Point

JLarryL Exota Sun, 05/20/2018 - 09:50 Permalink

Good quote: "... a great shortage of foodstuffs, an exhaustion of the sources of foreign currency ... "

The part he omits: Caused in great part by American sanctions.

"... the awakening of theirs beloved nation at a luminous dawn .."

This must be fake. Does anyone in authority really think or write like this? It's twisted.

In reply to by Exota

Chief Joesph Sat, 05/19/2018 - 20:51 Permalink

Yet, we say nothing about the inflation going on here in this country.  Everyone can see it going on at the grocery store and at the fuel pump.  

Last year, the inflation rate based on the value of a 1970 dollar, was 531.8%.  This year, using the same 1970 dollar, the inflation rate has climbed to 545.7%.  In otherwords, in just the first 5 months of this year, America has an inflation rate of 13.9%.   NOT GOOD!  The FEDS are saying the inflation rate is below 2%.  They missed their target by miles.

You can do the math yourself by going to this website: http://www.usinflationcalculator.com/ 

land_of_the_few Chief Joesph Sun, 05/20/2018 - 02:33 Permalink

The US-based DolarToday anti-VZ website that Hanke relies on here for "data", is headed by a fugitive former VZ Colonel Gustavo Diaz who led a failed military coup there in 2002. He now sells fasteners in Home Depot in Hoover, Alabama. Color me skeptical but he doesn't seem to be an economist or financial trader or anything. Seems perhaps it would be hard to do such a thing on a bolt salesman salary?

"He Works at Home Depot—When Not Messing With Venezuela

Gustavo Diaz once tried to overthrow Chavez; now he lives in Alabama"

http://www.newser.com/story/234331/home-depot-worker-waging-economic-wa…

 

In reply to by Chief Joesph

Benjamin123 land_of_the_few Sun, 05/20/2018 - 05:44 Permalink

That website is not as popular as it once was, because the rates it publishes seem a bit lower that the ones you can actually get. I have bought bolivars a few times already, and got rates around half a million bolivars per each dollar. Overall what i notice is that price of groceries measured in dollars appear to be relatively stable, but move hand in hand with the dollar exchange. Eg: Exchange rate triples->Price of bag of rice triples (in bolivars). Groceries prices cannot be too different from those in Colombia, either way, because smugglers will smuggle. Anything that can travel is holding most of its value.

Prices of real estate held strong for many years due to psychological resistance, no one wanted to sell their properties for pennies on the dollar, but it looks like desperation is finally doing a number. You could probably get an apartment in Caracas for $10.0000, paid in dollars in accounts abroad. Its cheap for a reason, Caracas is on its way to Mogadishu, so dont think you are somehow making a great deal.

In reply to by land_of_the_few

Benjamin123 land_of_the_few Sun, 05/20/2018 - 14:27 Permalink

So what if hes in Alabama? So what if he works at Home Depot? The man is obviously in exile. He is not wrong tho, i have bought bolivars at rates similar to those published by that website, and later even higher. Black market exchange rates are not transparent, you negotiate around a benchmark, whatever idea you think a dollar is worth, and in my experience DolarToday rates follow closely grocery prices, at least on a Logarithmic chart..

In reply to by land_of_the_few

cheech_wizard Sat, 05/19/2018 - 23:44 Permalink

Yank some of the author's older articles about Venezuela...

Standard Disclaimer: If there was a Gartman award for ivory tower economists...Hanke's a shoe-in.

JailBanksters Sat, 05/19/2018 - 23:51 Permalink

So all you'd have to do is buy a Mo Ped and in 12 months time you'd be a Billionaire !!

Well, as long as you can sell it, if you can't sell it it's worth zero.

 

Like I've always said: Everything you own is worth Zero, until you sell it.

The only difference between Venezuela and America is the Timescale.

VWAndy Sun, 05/20/2018 - 00:15 Permalink

 Trapped in fiat hell? Try thinking in barter.

  Start by valuing your labor in barter. ie one hour of my time is worth two new car tires or three kegs of good beer. 

 Its the medium of exchange thats busted. Nothing wrong with the honest labor or goods or services. The trouble lies with the coin/money. Ditch the fiat and cut out pretty much all the skim.

Davidduke2000 Sun, 05/20/2018 - 06:16 Permalink

the same is happening in Argentina and will spread all over the world because the greedy run for the us dollar. it happened when Crimea rejoined the motherland, the us and vassals went on the attack after the Russian currency, some people panicked and almost sent the Russian economy into a deep decline, but Russia is the richest country is natural resources, it owed no money and it had $400 billion in reserves so the wolf gang did not succeed and Today Russia in almost the only country with real growth.

it all depend on the people and the traitors, in Venezuela , business owners pulled the covers to themselves and crashed their own economy because the CIA was well established in the american embassy , Maduro knew this and instead of capturing all this spies and kill them he asked them to leave the country  , by then the cancer have spread.

anybody who read the wars of the CIA would know how they operate.

Maduro should have kept the money and defaulted like all Latin america will do in this coming year sending american banks into bankruptcy because the losses from default will be great.

Venezuela is not as  bad as propagandists make it to be especially there is an election today and the CIA is dumping the load today, so all CIA propagandists will be on the attack all day and will try to spread panic into the population like during what the CIA called it the revolution against Jacobo Arbenz Guzman in 1954.

Arbenz was the second democratically elected president and the americans did not like it, they preferred a dictator of simply a military junta.

the CIA have been broadcasting from a shack in the jungle of Guatemala warning the people about a column of tanks, artillery and heavy equipments are the way to Managua the capital which spread fear and panic, in reality all what it was 3 donkeys , 20 paid traitors and 10 rifles was the invading force , the CIA even forced a colonel  in the army Carlos Armas to lead the so-called revolution he did not want knowing there was no revolution, at the end the panic in Managua and the us mercenaries removed Arbenz and installed reluctant Armas , but he was only a figurehead and a CIA government with assassins and all were running the country for united fruits of america sucking all the natural resources that consisted of fruits directly to the american market leaving the Guatemalan farmers broke, it was a flagrat theft.

Armas was of no use to the Cia because he showed that it was the CIA that was running the government and after 3 years he was assassinated by a us mercenary.

now some assholes who were not born when these crimes happened and feel patriotic since it is the last refuge of the scoundrel will vote me down which is ok with me.

Honest Sam Sun, 05/20/2018 - 12:17 Permalink

WTF are you trying to do, get John Oliver to double down on his "Socialism is Just Peachy wonderful for the People", monologue??

Please don't encourage that rat-looking bastard. 

 

Utopia Planitia Sun, 05/20/2018 - 14:12 Permalink

Send Bernie down to explain to the populace why that is a good thing!  Probably we would not have to worry about him spouting his garbage here after that. (but we should warn them that "BBQ Bernie Bits" are NOT nutritious...)

umdesch4 Sun, 05/20/2018 - 15:30 Permalink

Last week, I did the annual inflation calc myself, for the past 365 days from May 17th 2017 to May 17th 2018, and came up with the number 13,820%

It is accelerating though, so 16,000% for the current year sounds far more reasonable than the IMFs lowball number, which is already lower than current reality.