Venezuela's annual inflation hits 54.3 pct

Reuters

By Brian Ellsworth

CARACAS, Nov 7 (Reuters) - Venezuela's consumer prices rose5.1 percent in October, accelerating from 4.4 percent theprevious month to their second fastest pace in six years, thecentral bank said on Thursday.

The 12-month inflation rate climbed to 54.3 percent, thelatest blow to President Nicolas Maduro's efforts to stabilizethe economy. Heavy public spending and a creaking currencycontrol system left businesses struggling to import consumerstaples, machinery and replacement parts.

Venezuela's monthly inflation readings have been rivalingyearly price increases of other Latin American nations,threatening to weaken Maduro's base of support among the poorthat benefited from the oil-financed largesse of late PresidentHugo Chavez.

October's inflation was led by alcohol and tobacco priceswhich rose 8.6 percent. The important food and non-alcoholicdrinks sector was up 5.6 percent.

The central bank's "scarcity index", which reflectsshortages of basic consumption goods, reached 22.4 percent, itshighest level since the start of 2010.

Maduro says inflation and product shortages are caused by an"economic war" led by unscrupulous businesses backed byideological rivals in the United States who are seeking toundermine his socialist administration.

On Wednesday, he held a press conference to announceeconomic measures including a new price control mechanism,grassroots committees to stop businesses over-charging, and anew body to oversee the decade-old exchange control mechanism.

Government supporters also point to social programs such asfree health clinics and pensions for senior citizens, createdunder Chavez's leadership, as examples of social welfareinitiatives that benefit the poor and offset inflation.

Critics say state takeovers of hundreds of businesses duringthe Chavez era has crimped the private sector's ability toprovide goods and services - coinciding with an aggressiveexpansion of the money supply that has been far faster than therate of economic growth.

Monetary liquidity, often a key measure of the total moneysupply in the economy, grew 70 percent in the last 12 months asthe central bank provided financing to state oil company PDVSAto help it make social expenditures.

At the same time, the country's currency control systemprovides dollars at the official rate of 6.3 bolivars, but theblack market rate for greenbacks is now almost 10 times that.

Businesses that get official dollars to import goods face agrowing temptation to flip their currency on the black marketrather than bringing in the goods, diverting resources away fromproductive activity needed for steady growth.

The difficult economic panorama has spurred long lines atsupermarket, as well as occasional scuffles, to acquire basicgoods.

Shoppers carrying bags stuffed with milk, toilet paper andcorn flour are often stopped by strangers on the street askingthem where such products can be bought.

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