Inflation ~ Venezuela cuts 'five zeroes' from its currency !!

Inflation is too much money chasing too few goods !

Canada’s inflation hit the 3% mark for the first time since 2011 in July, an unexpected surge that puts pressure on the Bank of Canada to accelerate interest-rate increases. The consumer price index recorded an annual pace of 3 percent, quickening from 2.5 percent a month earlier, Statistics Canada said Friday from Ottawa. Economists expected the inflation rate to remain unchanged

Back home, India’s retail inflation cooled more than expected in July due to subdued food prices after the Monetary Policy Committee raised interest rates for the second straight time. Consumer price inflation in July rose 4.17 percent compared with the same month last year, declining from the five-month high of 4.9 percent in June, according to data from the Central Statistics Office. Headline inflation slowed for the first time after rising for the past four months. India’s rate-setting panel has hiked benchmark lending rates twice —in June and in August—to its highest level in two years for tackling inflationary pressure. The country’s inflation-targetting central bank has had a long-term aim to keep CPI at 4 percent. “We took two steps, one in June and one in August, to maximise our chances that we don’t drift away from 4 percent and in fact we move towards 4 percent,” Reserve Bank of India Governor Urjit Patel had said earlier this month after the policy meeting.

Inflation is the rate at which the general level of prices for goods and services is rising and, consequently, the purchasing power of currency is falling. In economics, inflation is a sustained increase in the price level of goods and services in an economy over a period of time.  When the price level rises, each unit of currency buys fewer goods and services; consequently, inflation reflects a reduction in the purchasing power per unit of money – a loss of real value in the medium of exchange and unit of account within the economy.  A chief measure of price inflation is the inflation rate, the annualized percentage change in a general price index, usually the consumer price index, over time.

Economists generally believe that the high rates of inflation and hyperinflation are caused by an excessive growth of the money supply.  Inflation may also lead to an invisible tax in which the value of currency is lowered in contrast with its actual reserve, ultimately leading individuals to hold devalued legal tender.  Today, most economists favor a low and steady rate of inflation. The task of keeping the rate of inflation low and stable is usually given to monetary authorities. Generally, these monetary authorities are the central banks that control monetary policy through the setting of interest rates, through open market operations, and through the setting of banking reserve requirements.

Four years of recession and the world's highest inflation have plunged millions of Venezuelans into poverty. Supermarket shelves in the capital Caracas have no food as Venezuela's economy sinks into the abyss        - in January, a non-governmental organization found that more and more Venezuelans, unable to afford anything else, were buying dog food to feed their families. The situation is reported to be especially dire for prisoners in the country who have resorted to eating rats and pigeons to avoid starving to death. Looting has been increasing in the provinces since Christmas, with food shortages and hyperinflation leaving millions of people hungry, though the capital, Caracas, has mostly lbeen unaffected. Stories of degradation and deprivation come out of Venezuela at a 'relentless clip', the Washington Post recently reported. Life has seldom been so challenging for people living in shanty towns      - and that is a reflection of the misrule. 

It is estimated that as many as four million Venezuelans - more than 10 percent of the population - have left the country.  That is an exodus on a similar scale to that of war-torn in Syria.  Now MailOnline reports that Venezuela will cut FIVE ZEROS from its currency in a desperate attempt to battle economic crisis which is set to see inflation hit one million per cent.

Media reports suggest that Venezuela is minting a new currency with five less zeroes than the bolivar in a desperate attempt to stem inflation and tackle its economic crisis. The new 'sovereign bolivar' will enter circulation on Monday, which has been declared a national holiday so that the population can get used to the new banknotes. Inflation in Venezuela is forecast by to hit a million per cent this year, with a cup of coffee now costing around two million bolivars.  President Nicolas Maduro  said the virtual petro currency, which was launched in February, would be a second 'accounting unit' for the country alongside the bolivar. Maduro said the virtual petro currency, which was launched in February, would be a second 'accounting unit' for the country alongside the bolivar and would have an official exchange rate.

Maduro said he would unveil a new salary and pricing system which would be anchored to the petro, which is backed by oil, ABC International reported. Venezuela's president said the country's central bank would publish an exchange rate for the new virtual currency.  In March,  US  President Donald Trump banned Americans from using the cryptocurrency in a move to stop Venezuela using it as a way to avoid U.S. sanctions. The executive order described the petro as an 'attempt to circumvent U.S. sanctions by issuing a digital currency in a process that Venezuela's democratically elected National Assembly has denounced as unlawful.' 

The currency reforms are the latest effort to shore up the country's struggling economy. Gasoline is practically given away in Venezuela with the subsidy, meaning a single liter of gasoline costs a bolivar, which is next to nothing. A dollar exchanged on the black market would buy nearly five million liters. Maduro has announced that Venezuela's dirt-cheap fuel will be available only to people with a special government aid card that the opposition has denounced as a tool for controlling people. People who want to keep benefiting from subsidized gas prices in this oil-rich nation must register their vehicles by Friday using the so-called 'carnet de la patria,' or fatherland card, which provides access to government assistance.

Certainly – all is not well in Venezuela

With regards – S. Sampathkumar

17^th aug 2018.