Archive for August 23rd, 2008

A graph of the dismal ability of the Government to predict inflation

August 23, 2008

The plot above shows how dismal is the ability of the Chavez Government to predict what inflation will be by the end of the year. In January, Minister of Planning El Trudi predicted that inflation would be 12% for the year, a value he reiterated in February, after the high number for the “new” CPI in January. By June, the 12% was a joke, since inflation had already topped it and Minister El Trudi came out with a new, and surprisingly precise, number of 19.5%. Well, with inflation at 17%, Minister of Finance Ali Rodriguez came up with a new number yesterday, saying that inflation for the year will be 27%.

Well, doing a fit with all three numbers and extrapolating to December, it looks like inflation will be 35% for the year, unless the “upturn” is real and it will accelerate and top 40%. In neither case is the end result very good for anyone, what is clear is that the Government has no clue as to what to do about inflation. Cooling the economy off and lowering the swap rate in the first half did nothing to slow down inflation. The Government has given up on the first strategy because of the upcoming elections and the second one is running into technical problems. This reminds me of the period during the Caldera administration, end of 1995, when with exchange controls in place, inflation accelerated and nothing the Government would do would slow it down. When inflation topped 120%, Caldera gave up and removed controls.

As with crime, Chavez simply ignores this problem never mentioning it. The latest strategy with crime seems to be that it has been blown out of proportion. Will they try to do the same with inflation?

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