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Venezuela's annual inflation hits 54.3 pct

By Brian Ellsworth

CARACAS, Nov 7 (Reuters) - Venezuela's consumer prices rose 5.1 percent in October, accelerating from 4.4 percent the previous month to their second fastest pace in six years, the central bank said on Thursday.

The 12-month inflation rate climbed to 54.3 percent, the latest blow to President Nicolas Maduro's efforts to stabilize the economy. Heavy public spending and a creaking currency control system left businesses struggling to import consumer staples, machinery and replacement parts.

Venezuela's monthly inflation readings have been rivaling yearly price increases of other Latin American nations, threatening to weaken Maduro's base of support among the poor that benefited from the oil-financed largesse of late President Hugo Chavez.

October's inflation was led by alcohol and tobacco prices which rose 8.6 percent. The important food and non-alcoholic drinks sector was up 5.6 percent.

The central bank's "scarcity index", which reflects shortages of basic consumption goods, reached 22.4 percent, its highest level since the start of 2010.

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

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

Government supporters also point to social programs such as free health clinics and pensions for senior citizens, created under Chavez's leadership, as examples of social welfare initiatives that benefit the poor and offset inflation.

Critics say state takeovers of hundreds of businesses during the Chavez era has crimped the private sector's ability to provide goods and services - coinciding with an aggressive expansion of the money supply that has been far faster than the rate of economic growth.

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

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

Businesses that get official dollars to import goods face a growing temptation to flip their currency on the black market rather than bringing in the goods, diverting resources away from productive activity needed for steady growth.

The difficult economic panorama has spurred long lines at supermarket, as well as occasional scuffles, to acquire basic goods.

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