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The IMF’s Venezuela Inflation Guesstimate Was Way Off

In October, the International Monetary Fund (IMF) committed a blunder when it issued a forecast for Venezuela’s end-of-year annual inflation rate. An inflation forecast in a country that is toying with hyperinflation is a mug’s game.

The IMF’s October 2016 World Economic Outlook (WEO) forecast for Venezuela’s 2016 year-end annual inflation rate was 720 percent. The IMF’s figure gave the appearance that it was based on a finger-in-the-wind estimate. Indeed, the last serious connection between Venezuela and the IMF was back in September of 2004, when an Article IV Executive Board Consultation occurred.

But, the IMF published a forecast anyway. What became a magic number of 720 percent was repeated over and over in the financial press. Sometimes the press reported it as a forecast, which it was, but more often than not, the unthinking and herd-like press reported it as if it were a measured rate, which it was not.

The only accurate measured rate of the general level of inflation in Venezuela is produced by the Johns Hopkins-Cato Institute Troubled Currencies Project (TCP), which I direct. This project measures inflation as it occurs. It does not produce inflation forecasts. The TCP’s measured inflation rates are based on the long-established principle of Purchasing Power Parity. Using this method, changes in black market (read: free market) exchange rates are translated into overall inflation rates. Based on my calculations, the 30-day moving average for Venezuela’s annual year-over-year inflation in December 2016 was 290 percent. This rate is less than half of the IMF’s foolish forecast.



by Steve H. Hanke
Past Blogs

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September 09, 2016

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On The Minimum Wage and Populism

April 05, 2016

That might look attractive to youths and minorities. But, analysis of the data shows that higher minimum wages will not fulfill most of the advertised promises.

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Birds of a Feather: Clinton, Sanders, and Trump

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What do Hillary Clinton, Bernie Sanders, and Donald Trump have in common? Well, they claim that weak currencies are a key that gives producers a competitive edge. This claim fuels their furor with China and its currency, the renminbi (RMB). According to the candidates, a manipulated, weak RMB allows China to push aside U.S. producers.

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The Hong Kong Dollar: A Speculators Graveyard

March 17, 2016

Since 1983, when Hong Kong adopted its currency board system, speculative bets against the Hong Kong dollar (HKD) have ended in the graveyard. Just ask Bill Ackman. He bet the house in a 2011 attach on the HKD, and he lost big. Now, it’s reported that the likes of George Soros and Kyle Bass are rolling the dice against the HKD. They will lose, too.

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