While developed economies struggle with an average inflation rate of 7%, Venezuela faces inflation of up to 310%.
Inflation in the US has eased in recent months, having peaked above 9% last summer. But even at its worst, price increases have been significantly lower than what people in some less developed economies have suffered over the years.
Several countries, including Venezuela, Argentina and Sudan, have seen soaring costs for decades. Last year, Venezuela’s consumer price index was more than four times higher than a year earlier, while Argentina’s was nearly double what it was in 2021, according to data from the International Monetary Fund (IMF).
Although inflation has been a constant problem in Venezuela since the 1980s, it has never been this high in recent years.
The Latin American country saw hyperinflation of more than 130,000% in 2018, when the government had to create a new currency - the Bolivar Soberano - with an exchange rate of 100,000 old bolivars, to simplify transactions. The price of a can of Coke went from 2.8 million "old" bolivars to 28 "new" bolivars.
In 2022, Venezuela's inflation is still 310%, the highest in the world.
Andrés Guevara, an economics professor at Andrés Bello Catholic University, said Venezuela's pensioners and public sector workers are the hardest hit. He told CNN that the country pays pensions and public sector salaries in local currency, so when the bolivar loses value "it loses purchasing power and massively impoverishes these segments of the population."
“I can only buy a piece of cheese with my pension,” Nelson Sánchez, a Venezuelan pensioner, told CNN . Having to return to receiving financial support from his family after 50 years of working, he said “it took a long time to adjust.”
Meanwhile, as prices have risen in Argentina, wages have increased at a more regular pace. “Unions in some sectors of the economy are demanding wage changes every two months,” said Emiliano Anselmi, chief economist at Portfolio Personal Inversiones, an investment firm based in Buenos Aires.
Inflation also leads to another problem: people try to spend money as soon as possible. "Because everything is going to be more expensive tomorrow, people want to spend money as soon as they get it, and that continues to increase inflation," Anselmi said.
In affected economies, credit is tight, especially for the less affluent. “Credit markets don’t exist. If you want to buy a house, you pool every dollar together and pay it all at once,” said the chief economist at Portfolio Personal Inversiones.
As governments struggle with their finances, people have found ways to get around these situations. One of the most popular solutions is to use more stable currencies, especially the US dollar.
According to Guevara, the use of US dollars for transactions has become popular in Venezuela because people do not trust the local currency with the high inflation rate. "There has been a de facto dollarization of the Venezuelan economy," Guevara said.
Improving inflation in Venezuela requires better institutions, with greater transparency. “There is no trust, no rule of law, and the institutional base is quite weak. That is the underlying problem in Venezuela,” he said.
In Argentina’s case, Anselmi believes that after the 2024 elections, the new government will need to implement a stabilization plan to reduce the deficit and inflation, which could mean increased poverty and social conflict, especially in the first six months of the year.
Minh Son ( according to CNN )
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