Cost of Basic Basket of Food Rises 51% in Venezuela

The cost of the basic "basket" of food as measured by the National Statistics Institute (INE) rose by 51.3% to BsF802.5 in August – BsF3.27 more than the legal basic minimum wage of BsF799.23, on which an unofficially estimated 15 to 20% of the population depends.

The amount of money circulating in Venezuela's economy continues to rise, although financial analysts reckon that the rate of expansion is slowing down, with the Venezuelan Central Bank (BCV) estimating an increase of one percentage point last month to an average BsF173.341 billion.

Orthodox economists and central bankers are averse to the very thought of an economy floating on a sea of excess cash. Their fear is that an economy awash with money simply eventually puts more money in people's pockets and encourages them to go on shopping sprees.

All too often, they reason, this adds to inflationary pressures. Prices shoot up as consumers with bills burning holes in their pockets and wallets rush around paying more for things they perhaps don't need.

In doing so, it's argued, consumers stoke up the monetary merry-go-round – and they tend to do it on credit of one sort or another. This appears to be what's happening in Venezuela, although the tendency to spend money you haven't got seems to have slowed.

Credit extended to borrowers totaled BsF125.5 billion during the 12 months ending in October, marking an increase of 28.6% on a year before, when the volume of credit jumped by 83.92%. But bad debts went up on the same comparison from 1.3% to 2.06%.

The slowdown is attributed partly to rising interest rates and partly to the impact of inflation, which has surged anew in recent months.

The basic interest rate of consumer credit rose in the 10 months up to October from 28% to 33%. Inflation is galloping along at an annual rate last estimated at an official 36%, including more than 50% for food.

The Caracas Stock Exchange or Bolsa continued to draw attention from investors, with the value of traded equities reaching BsF63.6 million in October, up 26.86% on the same month a year earlier -- but that could be a reflection of inflation and a currency that fell from 3.25 to 5.1 in the black market.

The curious custom of setting interest rates on savings and deposits below rather than above the prevailing rate of inflation unsurprisingly discourages many Venezuelans from saving for a rainy day, although some evidently still do. Total savings in the financial system totaled BsF208.1 billion, up 25.26% over the preceding 12 months. Savings held at banks rose over the same period by 17.47% to BsF38.3 billion.

Faced with constantly rising prices, employees and organized labor have pressed employers hard to make up the difference, but with only limited success in the private sector. Bosses were evidently aware they were in the driver's seat.

The BCV estimates that pay rates in the private sector rose in the year ending in September by 25.3% – over 10 percentage points short of the accompanying rate of inflation. Employees in the state sector did much better, with their pay increasing by 35.7% and all but matching inflation.