The places with the highest inflation in the world.

While developed economies grapple with an average inflation rate of 7%, Venezuela faces inflation reaching as high as 310%.

Inflation in the U.S. has eased in recent months, having previously peaked above 9% last summer. But even at its worst, the price increases are still significantly lower than what people in some less developed economies have endured for years.

Several countries, including Venezuela, Argentina, and Sudan, have been grappling with soaring costs for decades. Last year, the consumer price index in Venezuela was more than four times higher than the previous year, while in Argentina it was nearly double what it was in 2021, according to data from the International Monetary Fund (IMF).

Although inflation has been a persistent problem in Venezuela since the 1980s, the rate has never been as high as it is in recent years.

This Latin American country witnessed hyperinflation exceeding 130,000% in 2018, forcing the government to create a new currency – the Soberano Bolivar – with an exchange rate of 100,000 old bolivars to simplify transactions. The price of a can of Coca-Cola changed from 2.8 million "old" bolivars to 28 "new" bolivars.

In 2022, Venezuela's inflation rate remained at 310%, the highest in the world .

Andrés Guevara, a professor of economics at Andrés Bello Catholic University, said that pensioners and public sector workers in Venezuela are most affected. He told CNN that the country pays pensions and salaries to civil servants in the national currency, so when the bolivar depreciates, "it destroys purchasing power and impoverishes these segments of the population en masse."

"I can only afford a slice of cheese with my pension," Nelson Sánchez, a retiree in Venezuela, told CNN . The man, who after 50 years of work had to return to receiving financial support from his family, said it "took a long time to adjust."

Meanwhile, as prices rise in Argentina, wages have increased at a more regular pace. "Unions in some economic sectors are demanding wage adjustments 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 their money as quickly as possible. "Because everything will be more expensive tomorrow, people want to spend their money as soon as they get it, and this further fuels inflation," Anselmi said.

In affected economies, credit is restricted, especially for the less affluent. "The credit market doesn't exist. If you want to buy a house, you gather every single dollar together and pay it all at once," said the chief economist at Portfolio Personal Inversiones.

As governments grapple with their finances, people have found ways to navigate these situations. One of the most common solutions is to use a more stable currency, particularly the US dollar.

According to Guevara, the use of USD for transactions has become common in Venezuela because people don't trust the local currency due to its excessively high inflation rate. "There has effectively been a 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 a rather weak institutional foundation. That is Venezuela's underlying problem," he said.

In the case of Argentina, Anselmi believes that after the 2024 elections, the new government will need to implement a stabilization plan to reduce the deficit and inflation. This plan could mean an increase in poverty and social conflict, especially in the first six months of the year.

Minh Son ( according to CNN )

Source link