Household expenses fall and inflation remains high: economic projections in the face of uncertainty in Venezuela

Household expenses fall and inflation remains high: economic projections in the face of uncertainty in Venezuela

Household expenses fall and inflation remains high: economic projections in the face of uncertainty in Venezuela

 

Economic activity throughout Apure State remains slow, as a result of the low influx of customers to stores. Most buyers are joining forces to purchase food, given the economic crisis that the country is experiencing. The apparel sector is one of the most affected, as sales have dropped by more than 60%.

Housewives and formal and informal merchants are worried and others are depressed, about the current situation in Venezuela. “They do art and magic to be able to cook halfway every day and cover all household expenses. We are an economically and psychologically depressed people,” said economist Efraín Yadala.





Today, thanks to Venezuelan migration, around 33% of the population is supported by family remittances from different parts of the world, mostly from Colombia, the United States, Canada and Spain.

Increasing production and productivity are the solutions to the country’s economic problem. “If we have a good industrial park that produces and transforms raw materials, produces goods and services in accordance with the country’s standards, we would have an enviable economy like we had 30 years ago. Currently, Venezuela is not an ideal country to invest in,” he said.

According to the economist with 30 years of service and advisor to 14 companies in the plains region, the Venezuelan economy is literally paralyzed because there is currently a severe economic stagnation. Businesses and processing companies can only maintain inventories and barely cover operating expenses without economic profitability, as used to be in other times when profitability was between 15% and 20%.

Lack of bank financing

“There is a total illusion, businesses are working only to maintain inventory. Today in Venezuela there are no prosperous, robust businesses with high profitability due to the lack of leverage of the entire private and public banking sector in the country. Only the Bank of Venezuela is granting loans in a very timid manner, only to very small sectors, mostly for entrepreneurs, 2,000 to 3,000 U.S. dollars, while to small businesses between 20,000 and 30,000 dollars, insufficient capital to move a business forward,” said the financial expert.

According to data collected by the university professor, the level of profitability today ranges between 7% and 8%, and depends on the nature of the companies.

“Inflation rates are decreasing month by month. According to the Venezuelan Finance Observatory, the inflation rate is at 48% so far in 2024. We are in the presence of a monthly inflation rate of between 7% and 8%. I estimate that this year, 2024, will close between 80% and 90% inflation,” Yadala said.

Merchants say that sales are stagnant. “They do not rise much, sometimes less than 5% inter-monthly, and when you cross this with inflation or price variation it is an insignificant growth. The prices of goods and services grow faster than company sales,” Yadala added.

New monetary cones

The business consultant disapproves of the issue of new 200 and 500 bolivar bills as of last Friday, August 16th. He believes that this will bring higher inflation, because businesses are now under pressure to increase prices to generate less loss, so that the final consumer will end up paying the price as always in this adverse context.

“It is practically a new devaluation of the currency, it is the second adjustment that is made to the monetary cone: the first was made when the 100 bolivar bill disappeared,” he said.

Yadala does not rule out that after a year, the 500 bolivar bill will evaporate from the market and the Government will be forced to remove zeros from the bolivar, despite the fact that it has been proven that it is a measure that does not work.

Falling sales

María Flores, a merchant for 35 years, explains why the economic activity in Apure’s is slow and getting worse.

“The month of August has been much slower than the rest of the past year. The income of bolivars is slow. In addition, there is no influx of customers in my clothing store due to the lack of money, even though the prices of the merchandise have remained the same. Sales have fallen too much during the month of August, more than 50%. We are keeping up with offering rebates and even so the movement is slow,” said Flores.

The merchants in this sector hope to recover at the end of the year, with the arrival of the school period and the Christmas season, with the collection of school and Christmas bonuses that allow the purchase of merchandise.

An informal vendor of children’s clothing who works on the San Fernando boulevard regrets the drop of at least 70% in sales since January 2024, which has worsened after the presidential elections. However, she refuses to leave the country because she has small children.

“People mostly buy food instead of clothes. Last week I didn’t make even 50 dollars all week. I hope to bring in other types of merchandise, adult and sports clothing to be able to recover and face the crisis. Every day I have less money. Thank God my husband also works at home so that the five members of my family can survive and consume protein three times a week. The situation is quite critical, but we are moving forward,” said the informal vendor who asked to remain anonymous.

A woman in charge of a clothing stand on the boulevard describes the situation in the country as “fatal and terrible,” given the lack of jobs, low wages and salaries. “We are worse off than Cuba. My husband helps us because he works in the fields and brings home our daily bread. Only Jehovah of the Hosts can put his hand in and help us in this regard,” said the woman.

Recommendations for survival

Economist Yadala suggests that housewives buy only what is strictly necessary for the household to make their money last while this political situation passes, because its end is unknown and the Government is repeating erroneous patterns already implemented without satisfactory results to economically lead the country (onto a recovery).

To entrepreneurs and medium-sized businesses, especially those in the plains, he recommends establishing an exact calculation base for the minimum inventory to maintain over time, because if they invest in inventory and sales do not help or inventories are not rotating, inventory cannot be replenished in the face of high inflation.

He predicts that in the coming months of 2024, prices will skyrocket, due to end-of-year bonuses and the issuance of 200 and 500 bolivar bills.

“We are putting into the economy more inorganic money, because there are not enough international reserves in dollars stored in the Central Bank, while private banks offer retail dollars to medium-sized and large companies that have the capacity to import. I understand that the Government wants the Bolivar to be positioned above the dollar, but this is impossible because it is the reference currency of the world,” he explained.

The Venezuelan economic model is practically abstract and unpredictable, because there is inflation in prices quoted in dollars. “It is a changing (evolving) system in the short and medium term, the law of free market is violated, which leads to scarcity and low production. Manufacturing companies in Venezuela closed and transnationals went to other countries, that is why we have lost market, there are few products to offer because demand is limited,” he added.