Three-Digit Salute

HistogramWhat are we to do now that the Central Bank has stopped even pretending it’s one day going to start publishing timely inflation statistics again?

Well, you could wave your hands and say “marico esta vaina es hiperinflación.”

Or you could run 5,456 regressions using various combinations of 33 published statistical indicators to estimate the Consumer Price Index over the last year.

Bank of America is into the latter method. (Virtually everyone else seems to favor the former one.)

The outcome? Inflation is likely running at around 101% over the last 12 months (95% confidence interval says the real rate is between 88% and 110%).

In the first four months of 2015, though, the average monthly inflation rate was 8.5%. On an annualized basis, we’re looking at 165% inflation in Jan-April 2015.

For those keeping score at home, that’s still some way from the 50%-per-month figure normally agreed to constitute hyperinflation. But the direction of travel is entirely clear.

38 thoughts on “Three-Digit Salute

  1. Forest, Threes.

    The regime’s mismanagement of the economy, both advocated ,purposeful, intended and not! is resulting in all the behaviour that we are seeing.

    As in the electoral system discussions, is it really important to know to a 1/100 decimal accuracy the amount of inflation or the myriad ways the system has been compromised and tampered with?

    Is it not enough to understand the motivation, opportunity, access and incentives that Venezuelan economic policy administrators and Venezuelan electoral system administrators have had their 15 year plus tenures, and based on all the trends and “direction of travel” we are experiencing assess that their time is up and their tenure must be brought to a urgent revision?

    Venezuelans need to understand the life threatening consequences of allowing the incumbent regime to keep running the nation to ground.

    where are the POLITICIANS making this case?
    Oh I forgot MUD said no to marching on saturday! well….

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    • Correction : PART of the MUDcrap daid no. The rotten one.

      Capriles, MCM and many others are in. The Students are in. Heck, even Copei, etc will join.

      Actually it was great news that some in the Chavista-Light MUD said no.
      Now we know more precisely who the MUDcreeps are.

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  2. “With a sizeable trade surplus, Venezuela is unlikely to see any balance of payments crisis in the foreseeable future, and its currency does not need to be devalued. Even if the currency were devalued, the resulting inflation would likely be modest.”

    Mark Weisbrod (Ph.D.-Apologetics) , September, 2012.

    Liked by 1 person

      • He had some similar predictions in March April 2013, when he said inflation was on the decline. Other than him co-writing an article with Oliver Stone in the Guardian that the US was behind the protests last year, I haven’t seen much from him.

        Liked by 1 person

        • He is still churning out propaganda for the regime, but he is not getting as widely published as he was before. Check out his OpEd publications, noting in which sources it was published here: http://www.cepr.net/mark-weisbrot-op-eds

          He has been getting a number of pieces about Greece published recently, so the new Greek government must have tossed him a bone or two. But, I suspect that he is not being taken as seriously as previously… and rightly so!

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          • Good call. I actually forgot, I saw a quote from him in an article in the New Yorker about the Greek debt crisis. I think he was described as a consultant to the Greek government.

            I saw the other day that the Greeks, down to the end of their cash, laid off most of the army of financial and banking consultants that were assisting them. Maybe he was one of them. I’d love to meet him one day.

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    • I was all set to make a crack about Dr. Weisbrot/Whitebread, but you and others beat me to it.

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  3. Quico, the 50% a month would definitely be a sufficient condition to call hyperinflation but it is not necessary. If we go to the source, the International Accounting Standards (http://www.iasplus.com/en/standards/ias/ias29) you get these guidelines:

    – the general population prefers to keep its wealth in non-monetary assets or in a relatively stable foreign currency. Amounts of local currency held are immediately invested to maintain purchasing power;

    – the general population regards monetary amounts not in terms of the local currency but in terms of a relatively stable foreign currency. Prices may be quoted in that currency;

    – sales and purchases on credit take place at prices that compensate for the expected loss of purchasing power during the credit period, even if the period is short;

    – interest rates, wages, and prices are linked to a price index;

    – and the cumulative inflation rate over three years approaches, or exceeds, 100%.

    By my count, we meet the first, second and fifth conditions already.

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      • But quico, 50% monthly inflation is not the standard. To economist there isnt a guideline as to what to label an inflation rate into hyperinflation. Surely triple digit annual inflation is one way. The other is having a monthly double digit inflation rate as it is happening in Venezuela currently.

        Liked by 1 person

      • Ok, I’ll bite… To an economist, what would be the qualitative difference between “normal inflation” and “hyperinflation”? If you are making a hard distinction between the two, there must be some point to it.

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      • From the wikipedia: “In economics, hyperinflation occurs when a country experiences very high and usually accelerating rates of inflation”

        Although the above definition does not emphasize this, it is the later property that marks inflation as “hyper”, since it implies a rate of inflation that has grown (accelerated) to unmanageable levels. You may prefer the term “runaway inflation”, inflation that is not constant but rather continuously increases. The textbook case is early Weimar Germany.

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        • You nailed it, Gro. The number of BFs required to purchase one USD is increasing exponentially, therefore very soon the inflation rate will surpass everyone’s threshold.

          I don’t think anyone can argue with this definition.

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  4. As someone accustomed to dealing in words rather than numbers, I find the academic debate over the numeric threshold between regular old inflation and the “hyper” kind rather tedious, although it seems to provoke quite a lot of ill-tempered exchanges.

    The important point – I venture to suggest – is that there is a qualitative difference between the two. It might be compared to the difference between a chesty cough and terminal pneumonia. As with a lot of qualitative differences, it is hard to pinpoint the precise boundary. But hyper-inflation is not just a much bigger amount of the same thing.

    Inflation is a malaise affecting an otherwise functioning organism. Hyper-inflation is the key symptom of the terminal phase of a moribund currency. There have been times in history — it happened in Bolivia in the ’80s for instance — when banknotes were weighed rather than counted. When the only sensible thing you can do with your money is exchange it as fast as possible (i.e. this morning, not this afternoon) for something of more lasting value, then you can be fairly certain you’re in a hyper-inflationary environment.

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    • AFAIK, inflation in and of itself is not a bad thing, as long as people can manage it. AFAIK it is in fact a sign of an expanding economy (deflation on the other hand can be a sign of a contracting economy). The thing is that the response to inflation can be non-linear, because peoples economic behavior is usually inter-dependent, so there is a cross-over point where the governments and citizens behavior changes dramatically (as defined for instance by Charlie Sugars list above) and the value of the currency collapses.

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  5. Wow… The Bolivar is in deep doo-doo, and you all are debating whether the doo-doo is brown or creamy-brown.

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  6. Norma internacional de contabilidad – 29:
    Esta Norma no establece una tasa absoluta para considerar que, al sobrepasarla, surge el estado de
    hiperinflación. Es, por el contrario, una cuestión de criterio juzgar cuándo se hace necesario reexpresar los
    estados financieros de acuerdo con la presente Norma. El estado de hiperinflación viene indicado por las
    características del entorno económico del país, entre las cuales se incluyen, de forma no exhaustiva, las
    siguientes:
    (a) la población en general prefiere conservar su riqueza en forma de activos no monetarios, o bien
    en una moneda extranjera relativamente estable. las cantidades de moneda local obtenidas son
    invertidas inmediatamente para mantener la capacidad adquisitiva de la misma; check
    (b) la población en general no toma en consideración las cantidades monetarias en términos de
    moneda local, sino que las ve en términos de otra moneda extranjera relativamente estable. los
    precios pueden establecerse en esta otra moneda; check
    (c) las ventas y compras a crédito tienen lugar a precios que compensan la pérdida de poder
    adquisitivo esperada durante el aplazamiento, incluso cuando el periodo es corto; partially
    (d) las tasas de interés, salarios y precios se ligan a la evolución de un índice de precios; not there yet y
    (e) la tasa acumulada de inflación en tres años se aproxima o sobrepasa el 100%; check

    Gracias por todo Fidel!

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  7. It took Zimbabwe about 4 or 5 years to get from where things are now in Venezuela to hyperinflation, so there is still time to milk the system and build that house in Panama!

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    • The hell with all this talk about “hyperinflation” or whatever. What we have is a Hyper-Dictatorship to get rid of. Saturday is a great start.

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  8. First of all, as others have mentioned, the 50% monthly inflation rate is an arbitrary threshold. There is nothing magical or fundamental about that number. I guess it’s just a nice round number.

    I haven’t seen the BoA report, so I don’t really know what they are doing and whether it is correct. One potential problem with what I imagine they are doing based on your post is that once you enter a hyperinflationary process, all those nice relationships and correlations between CPI and those 33 statistical indicators go out of the window. If the economy were entering an explosive inflationary path and they are not taking into account somehow the corresponding highly nonlinear dynamics, they could run a zillion regressions and that doesn’t make their estimate any better. Bottom line is that their inflation estimate has a potential strong downward bias.

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