Inflation eats up incomes: Pay increases fall behind price rises

Caracas Daily Journal (Jeremy Morgan): Inflation is greedily eating up ordinary people's incomes, even over and above whatever they manage to wring out of their employers in terms of pay increases. Price rises are running at an annual rate of 36 percent as Venezuela heads into the festive season. But latest figures from the Venezuelan Central Bank (BCV) show that pay rates in the private sector rose by 25.3 percent in the 12 months ending in September, so there's probably not very much cause for celebration.

The figures suggest pay is falling short of inflation by slightly more than 10 percentage points. Out of every BsF.10 in someone's pocket, one has evaporated into the inflationary storm.

The lucky exceptions to this rule -- and decidedly a minority of around 1.5 million out of a total work force put at 14.1 million -- are people in the state sector. Their pay increases have all but matched inflation at an average 35.7 percent over the past year.

Governments are always wary of taking on their own employees, above all in an election year, and it would appear the Chavez regime is no exception to the rule. But elsewhere, it's a different story, and all the more so amid mounting concern about the likely impact on Venezuela of the global financial crisis. Employee concern about jobs and pay raises tends to put bosses in the driver's seat -- and the gap between pay and the cost of living suggest both sides know it. Now, as the crunch starts to squeeze, there are even cases of companies not paying their employees on time, or not all their full dues such as overtime, or even – and this takes some believing – not at all, apparently on the assumption that workers will simply put up with it.

This might be called the Marie Antoinette school of management, recalling a French queen who, faced with bread riots on the eve of the 1789 revolution, unkindly and unwisely remarked "Let them eat cake." She ended up under the guillotine.

In Venezuela today, there's a long-established employment law. There's speculation that next year could see a swathe of potentially protracted and fierce labor disputes. For those at the bottom of the heap, the minimum legal wage of BsF.799.23 is worth $3.27 less than the basic "basket" of food worth BsF.802.50, as calculated by the National Statistics Institute (INE).

BCV statistics suggest middle class consumers have become less self-indulgent, particularly when it comes to spending sprees fuelled by credit cards and loans. The BCV says credit extended to borrowers totaled BsF.125.5 billion during the year up to the end of last month.
That was still 28.6 percent higher than a year before, but it didn't keep up with inflation, and the rate of increase in relying on credit has come down after leaping by 83.92 percent in the year ending September 2007.

It's a moot point whether this relative decline reflects greater caution on the part of consumers or the fact that they're paying more for credit than they used to not so long ago. Interest paid on credit rose in the 10 months up to October from 28 percent to 33 percent.