Econ in the News: Arepas and Hyperinflation

A man holds an empanada with a 2 Bolivar note, a sign of how worthless the currency has become.

Venezuela has been suffering from major hyperinflation during the past few months, due to the current government printing the Bolivar currency so much that it is nearly worthless. After the inflation rate skyrocketed to 68%, the government ceased reporting inflation figures. This has led some economists to make use of unusual (and delicious) methods to track the hyperinflation.

Miguel Octavio, a Miami-based financial analyst and avid blogger, has made use of arepas to help him create rough hyperinflation calculations. These cheese-stuffed staples of Venezuelan cuisine are very popular and now have rapidly fluctuating prices, perfect for measuring inflation. Based on his Hyperinflated Arepa Index, and another recent trip to his favorite arepa eatery, Octavio estimates at inflation is on track to hit 337% since he started measuring it in November 2014.

Source: Miguel Octavio’s blog

Amidst this crisis, growing numbers of people are starting to be unable to afford even basic necessities. A study by Venebarometro revealed that 4 out of 5 people reported that their salary could no longer adequately cover food costs, which acutely highlights the extent of this crisis. Despite what the official government reports may claim about exchange rates, the “black market” exchange rates demonstrate the economic realities of Supply and Demand; the more money you print, the greater the supply glut, and the more worthless the currency becomes. Though this is not yet as bad as Zimbabwe was, it appears that Venezuela has become entrapped in a death spiral of printing a rapidly devaluating currency.

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