Blog

Maduro Wins Election & Venezuela’s Inflation Makes A New High: 20,186%

President Nicolas Maduro is here to stay -- at least for a while. After winning a landslide ‘election,’ with over two-thirds of the vote, Maduro will remain in the saddle for another five years, in principle. But, as Venezuelans cast their ballots, Venezuela’s hyperinflation episode made new highs, with the annual inflation rate breaching 20,000% for the first time on election day. Currently (5/22/18) Venezuela’s annual inflation rate is at its highest ever: 20,186% (see chart below).

https://pbs.twimg.com/media/DdztZrCU0AAfX_j.png:large

 

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 data are available, changes in the black-market exchange rate can be reliably transformed into accurate estimates of countrywide inflation rates—if the annual inflation rates exceed 25%. The economic principle of Purchasing Power Parity (PPP) allows for this transformation.

Let’s take a closer look at just how rapidly Venezuela’s prices are rising, and how they stack up against other hyperinflation episodes in Latin America (see the table below). Last month, the monthly inflation rate—yes, the monthly—reached a new high of 234%. At this rate, prices doubled every 17.5 days.

The table below is a condensed version of the Hanke-Krus World Hyperinflation Table for the episodes of hyperinflation in Latin America. Contrary to popular opinion, there have been relatively few hyperinflation episodes in Latin America: only eight, with two of them occurring in Peru.

https://thumbor.forbes.com/thumbor/960x0/https%3A%2F%2Fblogs-images.forbes.com%2Fstevehanke%2Ffiles%2F2018%2F05%2FHanke-Krus-World-Hyperinflation-Table-For-Latin-America-1200x673.jpg

Venezuela’s death spiral continues to spin, as hyperinflation slashes the value of the bolivar. We can’t forecast the course or duration of Venezuela’s hyperinflation episode, but unless the government dumps the bolivar and replaces it with the greenback, as the Venezuelan populace has already done, this episode of hyperinflation could easily become much, much worse.
 

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

Past Blogs

Venezuela's Episode of Hyperinflation Reaches New "Highs" - Prices Double Every 17.5 Days

May 12, 2018

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 data are available, changes in the black-market exchange rate can be reliably transformed into accurate estimates of countrywide inflation rates—if the annual inflation rates exceed 25%.

more »

Thoughts Inspired By Steve Forbes On Mone

May 07, 2018

After lunch at the Faculty Club at The Johns Hopkins University campus, Steve Forbes, Elizabeth Ames, and I (Steve Hanke) retired to the library to tape an interview for a one hour documentary, “In Money We Trust,” that Steve Forbes is putting together. The documentary is sparked by Money (McGraw Hill, 2014), a book authored by Steve Forbes and Elizabeth Ames.

more »

North Korea's Economic Crisis -- What Crisis?

May 03, 2018

Much ink has been spilled recently about how economic sanctions have crushed the North Korean economy and brought its leader Kim Jong-un to the bargaining table. Not so fast. For starters, there wasn’t much to crush. Never mind. And, contrary to repeated conjectures by experts in international affairs, whatever there is of a North Korean economy appears to be quite stable.

more »