Wage hike expected to boost Venezuela's inflation

AP News
Posted: Apr 27, 2011 9:37 PM
Wage hike expected to boost Venezuela's inflation

President Hugo Chavez's decision to increase the minimum wage 25 percent is expected to elevate Venezuela's already high inflation, economists and opposition lawmakers said Wednesday.

Chavez's decree involves a 15 percent boost in pay at the beginning of May, then a 10 percent rise Sept. 1. The wage hike announced Tuesday will benefit more than 6 million people, who will earn $360 a month once the full increase is phased in. Chavez also gave public employees a 45 percent raise.

Government officials said they hope to keep inflation in check despite wage hikes. Labor Minister Maria Iglesias suggested greedy businessmen are partly responsible for Latin America's worst inflation, accusing them of unjustifiably inflating prices.

"We must launch a crusade against speculation," Iglesias said.

But Venezuelan economists believe the wage increase will likely hamper the government's efforts to curb inflation that reached 27 percent over the last year.

Asdrubal Oliveros, an analyst at the Caracas-based Ecoanalitica think tank, said efforts to curb inflation must include initiatives aimed at increasing domestic production, particularly of food; reducing price controls on basic goods; and restructuring a currency exchange control system that makes it difficult for businesses to import raw materials.

Ecoanalitica expects the government to significantly expand public spending ahead of next year's presidential election, a move that would involve injecting more cash into circulation, thereby increasing consumption and boosting consumer prices.

"For the government, the priority is clear: Spending is necessary to win elections even though that implies inflationary pressure," Oliveros said.

Venezuelan authorities "are stuck in a swamp of quicksand," the director of the newspaper Tal Cual, Teodoro Petkoff, wrote in an editorial published Wednesday. "The more they move, the deeper they sink. They are trapped in an inflationary trap."

Opposition lawmaker Tomas Guanipa called the wage hike insufficient.

"This new salary increase isn't enough to buy the basic foods for an average family of five," Guanipa said.

Augusto Montiel, director of Venezuela's consumer protection agency, said 280 officials would fan out across the country to inspect businesses as part of a campaign to ensure stores don't unfairly raise prices.

Montiel told Union Radio that "speculators are accustomed to increasing prices."

He urged consumers to call a toll-free line to report "irregular" prices hikes.