We expect Venezuela’s inflation to start showing some upward pressure on food prices due mainly to production and distribution disruptions to agricultural products as a result of heavy rainfall at the end of 2010 and the devaluation in early 2011. However, government price controls will likely prevent inflation from spiking and lead to a gradual correction in prices. We expect the Caracas CPI headline to hover around 2.2% m/m (27.1% y/y) in January. Additional pressures from sectors such as education, restaurants and health will also be present in January and should keep core inflation around similar levels (2.2% m/m, 29% y/y), according to our core estimate.
Caracas Headline, Core and Food Inflation (% y/y)
Source: Central Bank of Venezuela & RGE
Editor’s Note: This post is excerpted from a much longer analysis available exclusively to RGE Clients:Mexican Central Bank Comfortable With Inflation Outlook