When fools run the country and inflation goes whichever way it went

August 3, 2007


Venezuela
may be the only country where the underlying inflation goes up the highest in
one month and the Minister of Finance holds a press conference to tell the world
that economic policies are working and this can be seen in the inflation rate

As the June inflation rate dropped
to 0.5%, Minister Cabezas claimed
today that this showed that the policies implemented by his Ministry in
combination with the Central bank were having an effect. But in fact the drop in
the CPI for July is an artificial effect of the combination of one-time events:
the cut in the value added tax (VAT) rate from 11% to 9% and the drop in the
rates of telecom company CANTV, which led to a drop of 5.5% in communications
prices for the month of July. Remove these two factors and the true structural
inflation would be between 2.3% and 2.4%, the highest of any month so far this
year when these adjustments are taken into account.

Thus, it is not clear whether the
Minister is trying to lie or is simply ignorant or a combination of both.

What’s next?

Destroying the country’s yield curve?

Wait! He already did that!

This entry was posted on August 3, 2007 at 12:23 am and is filed under Venezuela.

Leave a comment