If Venezuelans thought their inflation woes couldn’t get any worse, they were wrong. While the regime has failed to report inflation beyond 2014, contravening the law, the Troubled Currencies Project estimates the annual rate at 808 percent, as of July 25.
The figure from Steve Hanke of the libertarian Cato Institute, deduced from the black-market exchange for US dollars, is more than 10 times the official rate of 68.5 percent for 2014. Further, the monthly rate of 20.2 percent pushes the Venezuelan bolívar deathly close to hyperinflation.
One now needs 687 bolívares to buy a single US dollar. In other words, the highest denomination bill available, 100 Bs., is worth a mere 14.6 US cents. This black-market rate comes from DolarToday, an outlet censored by the regime. However, they calculate the going value of the bolívar from the Colombian city of Cúcuta, located on the Venezuelan border.
In the face of constituent need, Chavista officials have resisted printing 500 or 1,000 Bs. notes — perhaps because they do not want to acknowledge the disparity between official numbers and the reality on the ground. For example, the official headline exchange rate of 6.3 Bs. per US dollar, available to the chosen few, overvalues the the bolívar by more than 100 times.
Companies on the domestic market, unable to access foreign currencies because of exchange controls, resort to the black market as an important reference for prices and purchases. Thus, the declining value of the bolívar — once known as the fuerte (strong), after a reprinting in 2008 — inevitably affects the Venezuelan consumer.
— Prof. Steve Hanke (@steve_hanke) July 27, 2015
Boris Ackerman, head of the Economics Department at Simón Bolívar University in Miranda State, told the PanAm Post that due to this rise in the black-market exchange rate, Venezuelan purchasing power is collapsing.
Further, he observes both disappearing product lines and diminishing labor productivity. What is not produced in Venezuela requires foreign currency, and the plummeting value of the bolívar means dramatically more expensive imports of both finished and capital goods.
Economist José Guerra assures that the government has thrown “in the towel in the fight against the black-market dollar,” because none of the instruments it has employed have produced any results. Meanwhile, the country moves towards hyperinflation.
Franco Bastida and Sabrina Martín contributed to this article.