Costs Law does not address inflationary factors, expert says

Venezuela's shortage index has returned to levels last seen four years ago. The shortage of products is harming both people and the government.

"Shortage does exist, but the government would rather inflation, because shortage of items is much more costly from a political standpoint than inflation. Ordinary voters get disappointed if they do not get diapers or milk. And the government will continue to play that game throughout 2012," explained José Manuel Puente, an economist and professor at Caracas-based Institute of Higher Education in Business Administration (IESA).

Although Venezuelan authorities have not announced the regulated prices of several basic products following the enforcement of the Law on Fair Prices and Costs, Puente warned that this law will not solve the inflation problem.

"In my view, it (the law) will not curb inflation, which is a complex problem, a phenomenon which may have several sources by means of demand or supply. There are several imbalances in Venezuela. While profiteering is one of these phenomena, and the State ought to regulate based on information and technical capacity, the speculative origin (of inflation) is one of them," he elaborated.

"The Costs Law only addresses profiteering and speculation but does not solve (problems caused by) expansionary fiscal policy and increasing public spending, which has an impact on liquidity," the PhD in Political Economy at Oxford University reasoned.

Translated by Gerardo Cárdenas