Venezuela inflation slows in October on bolivar gains

Venezuelan monthly inflation slowed in October as imported food, alcoholic beverages and tobacco costs eased after the bolivar strengthened in the unregulated parallel currency market.

Consumer prices rose 2.1 percent in October from the previous month, compared with the 2.6 percent rise in September, according to the central bank’s benchmark Caracas price index. Annual inflation in Caracas was 28.9 percent.

Slowing inflation is “mainly due to the strengthening of the currency in the parallel market,” Boris Segura, a Latin America analyst at RBS Securities Inc. in Stamford, Connecticut said in a phone interview. “We don’t see any relief to the inflation issue however, since it is a structural problem.”

Venezuela’s bolivar has gained 29 percent since Aug. 4 in the unregulated parallel currency market after the government and state oil company Petroleos de Venezuela SA sold $8.3 billion of dollar-denominated bonds to meet demand for the U.S. currency in the country. The bolivar trades at 5.47 per dollar today, 154 percent higher than the official rate.

Under restrictions imposed by President Hugo Chavez in 2003, the government controls the sale of dollars at the official exchange rate of 2.15.

Policies

Venezuelans buy dollars in the parallel unregulated market when they can’t get government authorization to purchase them at the official rate.

The government restricted dollar sales at the official rate early this year after a plunge in oil revenue, pushing travelers and importers to the parallel market and stoking inflation.

Monthly inflation as measured by the central bank’s national consumer price index, which measures prices across the country, was 1.9 percent in October, down from 2.5 percent in September, the bank said. The annual inflation rate, according to the index was 26.7 percent.

“We haven’t seen any policies that could help stem inflationary gains,” Adrian Aguirre, an economist at Bancaribe in Caracas said in an interview. “But it’s true that the parallel rate has remained controlled recently with the bond sales.”

Source: bloomberg.com

Publication date: 11/6/2009

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