VENEZUELA’S HISTORY OF INFLATION 2
Venezuela’s history of Inflation
Venezuela ranks fifth among the OPEC member countries in terms of oil production.
Petroleum products constitute 95% of its total exports translating to more than 50% of the
country’s GDP (Cerra, 2016). Between 1950s and early `80s, Venezuela’s economy was
considered the strongest in the entire South America. Currently, the country has one of the
world’s most repressive regimes, especially regarding property rights.
As of 2014, Venezuela’s inflation rate stood at 57.30%. Its economy has been rocked
with inflation for several years. Between 1973 and 2014, the inflation went up to as high as
115.18%. Its annual rate of inflation has gone beyond 100% for two episodes. The first
episode was in 1989 June when the inflation rate rose to 103.29% and the second episode was
in July 1996 when the inflation rate rose to 108.13% and stayed there for seven months till
January 1997 when it slightly dropped to 103.24% (Cerra, 2016). The country is currently
experiencing a stagflation with many economists predicting it could beat the mark of the
century to hyperinflation. The greatest worry to the Venezuelans is that since late 1980s, the
country’s annual rate of inflation has often been above 20%.
Some of the root causes of Venezuela’s hyperinflation include; vulnerability to
external shocks by the country’s oil-based economy. A greater percentage of Venezuela’s
exports are oil products which is quite susceptible to external shocks. With the oil prices
dropping to $40 per barrel in 2015 from $111 per barrel in June 2014, Venezuela had to
experience reduced foreign income which literally made the country run out of cash since the
country had not taken good care of its oil cash cow when times were good (Biller, 2016).
Secondly, Venezuela is in economic crisis with expected three years of recession
according to the IMF. The country is currently in the third year of recession where its
economy could possibly go down by 10% this year. This recession is forecasted by the IMF