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Venezuela’s Inflation Rate at 7849% Based On More Reliable AirTM’s Black-Market Exchange-Rate Data

The accuracy of inflation estimates using Purchasing Power Parity (PPP) depends on the accuracy of exchange rate data. Until further notice, I will use AirTM’s black-market exchange rate to calculate inflation for Venezuela. The charts below are based on AirTM’s data. 

The major reason I have switched black-market, exchange-rate data sourcing is that AirTM is making a market for bolivar-US dollar exchanges. Therefore, it is a source of primary data. And, primary data are superior to secondary data sources. 
 

 

As the bolivar collapsed and inflation accelerated, the Banco Central de Venezuela (BCV) became an unreliable source of inflation data. However, from December 2014 until January 2016, the BCV did not report inflation statistics. Then, the BCV pulled a rabbit out of its hat in January 2016 and reported a phony annual inflation rate for the third quarter of 2015. Nonetheless, the last official inflation data reported by the BCV is still almost two years old. To remedy this problem, the Johns Hopkins – Cato Institute Troubled Currencies Project, which I direct, began to measure Venezuela’s inflation in 2013. We measure the monthly and annual inflation rates on a daily basis. We measure. We do not forecast. 

 

The most important price in an economy is the exchange rate between the local currency and the world’s reserve currency — the U.S. dollar. As long as there is an active black-market (read: free market) for currency and the black-market data are available, changes in the black-market exchange rate can be reliably transformed into accurate estimates of countrywide inflation rates. The economic principle of Purchasing Power Parity (PPP) allows for this transformation.

 

We compute the implied annual inflation rate on a daily basis by using PPP to translate changes in the VEF/USD exchange rate into an annual inflation rate. The chart below shows the course of that annual rate. Today's implied annual inflation rate is 7849%/yr, the highest in the world (see the chart below).


 
Authored by Steve H. Hanke of the Johns Hopkins University
Past Blogs

Venezuela's Inflation Surges to A New High: 8321%

March 22, 2018

After Venezuela ditched its multiple exchange-rate system and announced that it would introduce a new cryptocurrency (read: the petro), the hapless bolivar staged a bit of a rally. Many people concluded that the rally was the result of these two policy changes. While that conclusion might hold some water, it isn’t much.

more »

The U.S. Forces Latvian Bank to Liquidate And Destabilizes Latvia

March 16, 2018

oday, Latvia’s ABLV Bank—its third largest, and largest private bank—announced that it had received approval from the Council of Financial and Capital Market Commission (FCMC) to liquidate, and that the Bank was proceeding with the process of liquidation. The proximate cause was the U.S. Treasury. It invoked Section 311 of the USA Patriot Act on February 13th, asserting that the ABLV had an “institutionalized money-laundering” problem,

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Venezuela's Inflation Surges to A New High: 7459%

March 14, 2018

After backing off over the past month and a half, Venezuela's hyperinflation is surging again, making a new high of 7459% yr/yr. The Grim Reaper has taken his scythe to the Venezuelan bolivar. The death of the bolivar is depicted in the following chart. On the black market (read: free market), a bolivar is worthless, and with its collapse, Venezuela is witnessing today the world’s worst inflation.

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Hanke’s Annual Misery Index: The World’s Saddest (And Happiest) Countries

March 08, 2018

The human condition inhabits a vast continuum between "miserable" and "happy." In the sphere of economics, misery tends to flow from high inflation, steep borrowing costs and unemployment. The most surefire way to mitigate that misery: economic growth. All else equal, happiness tends to blossom when growth is strong, inflation and interest rates low, and jobs plentiful.

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Measuring Venezuela’s hyperinflation

March 02, 2018

In a lecture delivered at the Institute of Civil Engineers on May 3, 1883, Lord Kelvin had this to say about measurement: “I often say that when you can measure what you are speaking about, and express it in numbers, you know something about it; but when you cannot measure it, when you cannot express it in numbers, your knowledge is of a meagre and unsatisfactory kind; it may be the beginning of knowledge, but you have scarcely, in your thoughts, advanced to the stage of science...

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