Venezuela’s Monthly Inflation Drops to Lowest Level in 19 Years

Paraguaná, April 3, 2007 (venezuelanalysis.com)— The anti-inflationary policies of the Venezuelan government have lowered the inflation rate for March, according to an announcement made by President Hugo Chávez yesterday. The final rate for the month of March was – 0.7%, the lowest in 19 years, thanks to government policies such as the reduction of the value-added tax.

The announcement came during an economic meeting with ministers and the Executive Cabinet in Miraflores on Monday. President Chávez congratulated the government for the success of the policies and gave special recognition to the Minister of Food, Rafael Oropeza, for his work in the state food company, Casa, and its network of food markets, Mercal.

"A well-coordinated and well-executed plan has to give positive results," said Chávez.  He stated that the low inflation rate is a "triumph of everyone and for everyone," since inflation is a "problem for everyone, for those of us in the government, and also for the communities and for the private sector."

According to a report by the Central Bank of Venezuela, the inflation rate for March finished at a historic low of -0.7%, a rate which hasn’t been seen since 1988. The rate means that not only was there no inflation, but there was actually deflation in the economy, meaning that prices of goods and services actually declined in March.

Among many anti-inflationary policies, the government policy of reducing the Value-Added Tax (VAT) is what contributed to the lower rate. In March, the government decreed a reduction of 3% bringing the VAT from 14% to 11% in order to contain inflation that grew 2% in January.

Other anti-inflationary policies that contributed to the decline include the government actions to combat speculation in the private sector of goods that were scarce in the market, as well as the release of various government savings bonds.

In February, the Venezuelan government, together with Argentina, launched the second round of Bonds of the South for a total of US$ 1.5 billion.  And later, in March, the Venezuelan state oil company PDVSA released the PDVSA Bonds for a total of US$ 5 billion. Both mechanisms had the intention of lowering inflation by soaking up excess cash in the economy. Together, the two bonds soaked up more than 13 trillion bolivars ($6.5 billion).

PDVSA will announce the results of the PDVSA bond sale today, which went on sale March 22nd. Initial data indicates that the launch was a success as the demand was 2.5 times higher than the supply. According to analysts, the bonds should continue to contribute to the government policy of lowering inflation.

Venezuela finished with an inflation rate of 17% in 2006, compared to 14% the year before. Both were above what the government had hoped for, mostly due to the increased social spending on the part of the Chávez government. The high revenues from oil sales has allowed for more public spending, and, as a result, more money circulating among the population.

Inflation has become the main concern for the Venezuelan economy since growth has been constantly above 9% over the last years, making Venezuela one of the fastest growing economies in the world.