Post by scumbuster on Aug 18, 2016 6:09:25 GMT -5
As Venezuela Hikes Wages Without Increasing Revenue or Production, 800% Inflation Likely to Surge
With 134% minimum wage hikes, world-record inflation could get worse
By Carlos Camacho
CARACAS -- Venezuela’s inflation rate, already expected by the IMF and others to break records this year, is now expected to go even higher after embattled President Nicolas Maduro hiked the minimum wage Monday, analysts say.
Inflation is so bad here, that the Central Bank stopped publishing its consumer price index for more than a year. They only resumed regular publication months ago. And when it resumed, it was bad news.
Under Maduro, inflation has gone from 20% in 2012 to 181% in 2015 and everybody says it will get worse, pointing to a tenfold increase in liquidity over the same period, a trend that has continued to this day. With the latest increase, announced over the weekend but published Monday, the minimum wage has been hiked 3 separate times for 134% this year alone, in a sinister game of catch-up with inflation, which is expected to top 700%.
And even with all the hikes, a minimum wage Venezuelan worker will take home, every month, only about $60 at the parallel (black market) rate. Inflation in Venezuela may be world class, but the pay sure isn’t.
UNILATERAL
The increase was decreed unilaterally by Maduro, who has dismal approval rates, business leaders note.
“They didn’t consult with anybody”, said Victor Maldonado, President of the Camara de Comercio de Caracas, the Caracas’ business chamber, during a live television interview. “They are just imposing the new measures.”
There is another problem: the government is Venezuela’s largest employer, with almost 3 million employees. Critics warn against the temptation of financing the hike by just printing “inorganic” (not backed by reserves) money, a temptation Maduro has known to have fallen into very, very often. “How will they pay for that?” Maldonado wondered during the interview. And he is not alone.
THE INORGANIC TEMPTATION
According to economic theory, the reason why Venezuela’s inflation is so high is money. Too much of it and insufficiently backed by existing reserves. Liquidity has increased tenfold since 2012 to 5.6 trillion Bolivars while reserves have dropped from an all-time high of US$43 billion in 2009 to just above $12 billion today, according to the Central Bank. So, that’s more bolivars backed by less dollars, a formula that clearly has produced less confidence and more inflation.
Francisco Martinez, head of the main businesses’ guild in Venezuela, Fedecamaras, said Monday night most companies will have to choose between laying off employees (unemployment is already above 7%, officially) or just closing. Laying off employees is illegal, by the way, so most companies that can’t hack it in the new environment just go out of business.
Before the hike, Venezuela’s GDP was expected to continue to contract, losing another 10% this year. But that was before the hike, things could get even worse after Maduro decreed it.
In a highly polarized environment and with approval rates of between 10 to 20%, almost anything Maduro does is criticized heavily. And If the President thought that hiking the minimum wage was going to restore his popularity, it has so far not worked.
“Who is responsible for the inflation? The government is,” tweeted opposition leader Henrique Capriles, governor of Miranda state. In a previous tweet he had asked what good is a minimum wage hike when it takes more than six months of the new wage to acquire the monthly basket of basic goods and services for a family of four.
Now, how high inflation can go in 2016 is anybody’s guess, in a country where after several years of double digit inflation mean that a color copy of the country's highest denomination bill -- the 100 bolivar note -- costs more than the note itself, which is worth just 10 cents at the black market rate.
www.laht.com/article.asp?ArticleId=2418894&CategoryId=10717
With 134% minimum wage hikes, world-record inflation could get worse
By Carlos Camacho
CARACAS -- Venezuela’s inflation rate, already expected by the IMF and others to break records this year, is now expected to go even higher after embattled President Nicolas Maduro hiked the minimum wage Monday, analysts say.
Inflation is so bad here, that the Central Bank stopped publishing its consumer price index for more than a year. They only resumed regular publication months ago. And when it resumed, it was bad news.
Under Maduro, inflation has gone from 20% in 2012 to 181% in 2015 and everybody says it will get worse, pointing to a tenfold increase in liquidity over the same period, a trend that has continued to this day. With the latest increase, announced over the weekend but published Monday, the minimum wage has been hiked 3 separate times for 134% this year alone, in a sinister game of catch-up with inflation, which is expected to top 700%.
And even with all the hikes, a minimum wage Venezuelan worker will take home, every month, only about $60 at the parallel (black market) rate. Inflation in Venezuela may be world class, but the pay sure isn’t.
UNILATERAL
The increase was decreed unilaterally by Maduro, who has dismal approval rates, business leaders note.
“They didn’t consult with anybody”, said Victor Maldonado, President of the Camara de Comercio de Caracas, the Caracas’ business chamber, during a live television interview. “They are just imposing the new measures.”
There is another problem: the government is Venezuela’s largest employer, with almost 3 million employees. Critics warn against the temptation of financing the hike by just printing “inorganic” (not backed by reserves) money, a temptation Maduro has known to have fallen into very, very often. “How will they pay for that?” Maldonado wondered during the interview. And he is not alone.
THE INORGANIC TEMPTATION
According to economic theory, the reason why Venezuela’s inflation is so high is money. Too much of it and insufficiently backed by existing reserves. Liquidity has increased tenfold since 2012 to 5.6 trillion Bolivars while reserves have dropped from an all-time high of US$43 billion in 2009 to just above $12 billion today, according to the Central Bank. So, that’s more bolivars backed by less dollars, a formula that clearly has produced less confidence and more inflation.
Francisco Martinez, head of the main businesses’ guild in Venezuela, Fedecamaras, said Monday night most companies will have to choose between laying off employees (unemployment is already above 7%, officially) or just closing. Laying off employees is illegal, by the way, so most companies that can’t hack it in the new environment just go out of business.
Before the hike, Venezuela’s GDP was expected to continue to contract, losing another 10% this year. But that was before the hike, things could get even worse after Maduro decreed it.
In a highly polarized environment and with approval rates of between 10 to 20%, almost anything Maduro does is criticized heavily. And If the President thought that hiking the minimum wage was going to restore his popularity, it has so far not worked.
“Who is responsible for the inflation? The government is,” tweeted opposition leader Henrique Capriles, governor of Miranda state. In a previous tweet he had asked what good is a minimum wage hike when it takes more than six months of the new wage to acquire the monthly basket of basic goods and services for a family of four.
Now, how high inflation can go in 2016 is anybody’s guess, in a country where after several years of double digit inflation mean that a color copy of the country's highest denomination bill -- the 100 bolivar note -- costs more than the note itself, which is worth just 10 cents at the black market rate.
www.laht.com/article.asp?ArticleId=2418894&CategoryId=10717