By Darcy Crowe
Of DOW JONES NEWSWIRES
CARACAS (Dow Jones)--Some businesses in Venezuela have started to raise prices after President Hugo Chavez devalued the currency by half, setting the stage for confrontations with authorities following presidential orders to shut down retailers that hike prices.
Airlines doubled airfares as early as Monday while there were official reports of large retail chains hiking their prices after Chavez cut in half the official currency peg to 4.3 bolivars per dollar from the previous rate of VEF2.15. Importers of essential goods such as food and medicine will buy currency at a subsidized rate of VEF2.6.
A shopping spree that started after Chavez unveiled the devaluation late Friday has given few signs of waning. Venezuelans continued to swarm shopping malls and lined up to buy ... READ MORE
home appliances and electronics, which are seen as a hedge against expected price increases.
home appliances and electronics, which are seen as a hedge against expected price increases.
Travel agencies reported a surge in calls from costumers trying to buy plane tickets just to learn that prices had already doubled. Shoppers are also snapping up personal-care products, from toothpaste to soap, on fears that prices will jump as so-called non-essential imports will now pay the VEF4.3 rate.
"People are right to be afraid and there's still a lot of uncertainty right now," said Roberto Leon Parilli, head of the consumer protection association Anauco.
This sentiment was echoed by Amelia Soto, a 52-year-old housewife, who bought 23 toothpaste tubes in a drugstore in a middle-class Caracas neighborhood. "Everywhere I hear that prices are going to skyrocket, so I want to buy as much as I can now," she said.
The price hikes represent a tremendous liability for a country in which the economy is on the skids and annual inflation is now running at 27%, one of the highest official rates in the world. Finance Minister Ali Rodriguez said the devaluation could add as much as five percentage points to the current 2010 inflation forecast of 20%.
Rodriguez's estimate was dismissed by former central bank director Domingo Maza Zavala, an economist respected by the opposition and Chavez loyalists alike. Inflation, he said, could top 60%. "There's no doubt that inflation will double," he said.
Trying to quash the price increases, which could jeopardize his popularity ahead of September Congressional elections, Chavez threatened on Sunday to shut down and seize any businesses raising prices. He also ordered the National Guard to be deployed on the streets and be on the look out for price gougers.
Following his orders, the state consumer protection agency, Indepabis, along with national guard troops, closed 70 stores on Monday. Almacenes Exito, a hypermarket chain headquartered in Colombia, saw some of its stores temporarily closed on accusations of price gouging. Exito is controlled by French retailer Casino Guichard-Perrachon S.A. (CO.FR).
"They are trying to sell old products at new prices," said Valentina Querales, inspections director with Indepabis.
It was unclear whether the shutdowns were meant to make an example of Almacenes Exito in a bid to dissuade other companies from raising prices, or if the government will be truly aggressive in "hunting down," as Chavez put it, firms that increase their prices.
A report from the state news agency that 200 national guard troops were deployed for the inspections doesn't suggest that a nationwide sweep is underway.
By publicizing its inspections of large retail chains, the government carried out "a communications operation," said Laurent Zecri, vice president of Finance for Almacenes Exito in Colombia, told Dow Jones Newswires. Zecri denied that the stores had increased their prices.
On Sunday, Chavez said that "at this moment there isn't any reason for anyone to increase their prices." Retailers haven't been setting prices at the previous fixed VEF2.15 rate for a long time, he noted.
Instead, they have used a black-market rate, where a dollar fetched VEF6.4 on Tuesday, to set their prices. So the devaluation shouldn't lead to price increases across the board, he explained.
That opinion is shared by some economists.
Last year, as Venezuela's oil revenue plunged, the government forced as much as $22 billion in imports to be brought in using black-market dollars. So the prices on those imported electronics and consumer goods reflected black-market exchange rates.
Some consumers "may be acting irrationally," but they do have something right, said Maikel Bello, an economist at Caracas-based research firm Econanalitica. "In Venezuela, prices are always adjusted upwards."
-By Darcy Crowe, Dow Jones Newswires; (58) 212 905 6304; darcy.crowe@dowjones.com
(Matthew Bristow in Bogota contributed to this article)
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