Venezuela's currency plumbs unknown depths
Even a modest rate of inflation compounds over time. This is why your tipsy grandfather might wistfully recall how little a pint of beer cost in his heyday. In Venezuela, where prices are rising at a four-figure annual rate, the good old days were last month. The defence minister, Vladimir Padrino López, on January 19th urged business leaders to peg back prices to their levels of December 15th, when presumably everything was just fine.
The spending power of the bolívar, Venezuela’s currency, had collapsed long before then. The Economist’s Big Mac Index gives a rough guide to how fast it has fallen. The index is based on the idea of purchasing-power parity (PPP), which says a fair-value exchange rate is one that leaves consumer prices the same in different countries. In our index, the price of a Big Mac is a proxy for all goods. In Caracas, this week, a Big Mac cost 145,000 bolívars; in American cities, it cost an average of $5.28. The ratio of those prices gives a PPP exchange rate of 27,500 bolívars. Two years ago, the rate was 27 bolívars. By this yardstick, the currency has lost 99.9% of its value in almost no time.
In fact the Big Mac gauge probably understates the general rise in prices and the slide in the currency. DolarToday, a US-based website that publishes real-time quotes, puts the black-market exchange rate at around 260,000 bolívars to the dollar, and falling. This rate has become one of the few reliable yardsticks against which to peg prices in Venezuela. Have your tyre replaced in Caracas, and the mechanic will check the DolarToday exchange rate before presenting the bill.
Imported goods, such as tyres, have a reference dollar price. But a lot of local prices do not keep up with the collapsing value of money. A monthly mobile-phone tariff is 38,000 bolívars, or 15 cents; a haircut is 25 cents. Wages tend to lag behind prices, in large part because it is so hard to keep up with them. The monthly minimum wage has just been raised for the umpteenth time, to around 800,000 bolívars. That is less than $4 at the current black-market exchange rate. If wages were perfectly indexed, it would serve only to speed up inflation. But their slow and uneven adjustment means the pain of hyperinflation is shared haphazardly. As Juan Perón of Argentina supposedly said, if prices take the lift, wages cannot take the stairs.
https://www.economist.com/news/finance-and-economics/21735596-hyperinflation-has-seen-bol-var-lose-999-its-value-two
