Are prices falling in Venezuela? Yes, for now.
President Nicolas Maduro’s battered economy experienced its first month of deflation since 2007 in February, according to opposition think tank Finance Observatory. Annual inflation was 85% – not that much short of over 400% a year ago – and food costs fell more than 3%.
“After a terrible low, life in Venezuela is getting a little better,” says Alejo Cervonco, chief information officer for emerging markets Americas at UBS Global Wealth Management.
This improvement rests on two shaky pillars. In late 2022, the US blew a hole in its sanctions regime, allowing oil company Chevron to resume drilling in Venezuela and supply desperately needed dollars. Caracas used dollars to clear bolivars, strengthening the local currency.
Maduro has also tightened domestic spending after a long period of hyperinflation. The minimum wage has remained stagnant for the past two years, allowing rising prices to eat into purchasing power, said Ryan Berg, director of the Americas program at the Center for Strategic and International Studies.
However, both gains are in jeopardy as Venezuela approaches elections scheduled for July. Washington could close the Chevron loophole if Maduro pushes his way to another six-year presidential term. Venezuela’s Supreme Court has already disqualified opposition candidate Maria Machado on charges of corruption and support for US sanctions.
Even as the opposition falters, Maduro will still be tempted to ease his fiscal austerity policies to win votes. “Maintaining orthodox policies requires that he not spend money on his base,” Berg says. Street protests are already growing among government workers and union members who traditionally support the regime, he said.
Despite the glimmers of good news on inflation, saying Venezuela faces a long road back is a gross understatement. The economy shrank by a third from 2014 to 2021, Chervonko notes. A quarter of the population – more than seven million people – have fled the country, and oil production has fallen 70% over the past decade, even as Chevron surged last year. However, a little better is better than worse and worse.