Venezuelans are feeling the effect of prices rising even when denominated in a foreign currency. Data compiled by market research firm Ecoanalítica suggests that the dollar-denominated price index increased by 54% during 2022, making a significant impact on the income and savings of those who have used the US Dollar as an inflation hedge.
Continued Rise in Dollar Prices in Venezuela
Since 2009, Venezuela has been experiencing a period of inflation, leading to a rise in prices for goods and services, even when denominated in a foreign currency. Economist Asdrúbal Oliveros, a partner at Ecoanalítica, noted that the inflation caused by the price increase of the dollar in 2022 had seen the exchange rate jump to 54 units per dollar.
The most affected sector was food and beverages, where prices rose by 66.7%. Similarly, the catering and lodging sector, which is linked to both international and national tourism, experienced a 95% increase. This was the sector with the highest rate of growth.
When looking at prices in terms of the national fiat currency, the situation is even worse. Food and drink prices have risen by 150% in the same period.
Venezuela, which was hit hard by hyperinflation in 2017, has largely emerged from this period. January 2022 was the first year that there were 12 months without a monthly inflation rate below 50%.
Unofficial Dollarization Process
While most stores still accept the local currency, the bolívar, as a means of payment, prices have been marked in US Dollars for some time in order to simplify inventory and price management. Since the government introduced a tax on the use of the dollar, payments in this currency have been declining since March. Despite this, the US Dollar is still widely used as a unit of account.
This phenomenon is referred to as ‘dollar inflation’ and it is affecting the savings of many Venezuelans, who, like Argentinians, have searched for refuge in stablecoins backed by the dollar and other foreign currencies. The bolívar underwent a sharp downturn in the second half of 2022, reaching new lows and further increasing demand for more stable currencies.
The firm anticipates that this trend will continue, with prices rising significantly in 2023. However, this could alter depending on the government’s openness to a more official dollarization process.
What do you think of the dollar-denominated prices increasing by more than 50% in 2022 in Venezuela? Leave a comment in the section below.
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