After a dramatic increase of 5.2 percent in April, Venezuela's inflation rate has been losing momentum and rose 1.6 percent in August, compared with 2.2 percent in the same month last year. Meanwhile, the Central Bank of Venezuela (BCV) said that "this is the second lowest inter-monthly variation in the past 17 months."

However, data showing inflation slowdown stop here. Between January and August, the cumulative inflation rate was 19.9 percent, while it amounted to 15.6 percent in the same period last year. Further, between August 2009 and August 2010, Venezuela's nationwide consumer price index (INPC) increased by 29.7 percent versus 26.7 percent. Additionally, agricultural products have climbed 53 percent so far this year.

These data are mainly related to the inflation rate in the first half of the year. However, what was the reason for a slower pace of inflation in August? What are the expectations in the medium term?

Ángel García Banchs, an economist and professor at the Central University of Venezuela, said that the impact of January's devaluation has diluted over time. Additionally, consumption decreased as purchasing power continued to crumble (-7.7 percent in the second quarter).

García Banchs claimed that demand is expected to record a seasonal increase in the fourth quarter. However, supply problems will remain amidst the shortage of foreign exchange to fund private sector's imports.

"According to my estimates, the inflation rate will hit 32-33 percent at the end of the year," the expert forecast.

"While the BCV's monetary financing could boost inflation, both falling demand and price controls keep this variable down," said José Guerra, a former economic research manager at the Central Bank of Venezuela.

"We will be faced with the worst-case scenario, with inflation at 28-30 percent, and with a government that seems comfortable with it, as it has relinquished policies to lower inflation. Except for price controls, there is no policy to curb inflation," added Guerra.

Translated by Gerardo Cárdenas