CARACAS, (Reuters) – Venezuela’s inflation soaring above 60 percent has boosted pressure on President Nicolas Maduro to speed up a transition toward a market-driven economy as the OPEC nation’s model of state-controlled socialism heads toward stagflation.
Sky-rocketing consumer prices and shortages of nearly a third of basic goods have helped push Maduro’s approval rating to 37 percent and weakened his standing as the heir to the wildly popular late socialist leader Hugo Chavez.
He has launched reform measures over the last year that were applauded by Wall St., such as easing Chavez’s rigid currency controls, but they have not stopped growth from slowing or prevented inflation from rising to the highest level since current records began in 2008.
The central bank blamed May’s 5.7 percent inflation reading on three months of opposition protests, but economists say the true culprit is a doubling of the money supply since the start of last year and a 17 percent increase this year.
“It’s easier to blame the protests than to cut spending and maintain fiscal discipline, which has a high political cost,” said Asdrubal Oliveros of Caracas-based Ecoanalitica. “If you don’t reduce monetary distortions, you won’t control inflation.”
Annualized inflation hit 60.9 percent in May, a headache for foreign companies such as Colgate-Palmolive that are struggling under rising costs as well as the hefty devaluation caused by recent currency measures.
Any long-term stabilization of prices will require cutting state spending, which the government is loathe to do because it would like exacerbate the sharp GDP slowdown of 2013. First-quarter GDP figures were due out last month.
Soaring prices have cut into the social development gains achieved by the late Chavez, who won repeated elections by lavishing oil revenue on the country’s poor through free health clinics, subsidized food and stipends for single mothers.