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Venezuela's Minimum Wage Hike Is No Match for Inflation
http://www.businessweek.com/articles/2014-05-06/venezuelas-minimum-wage-hike-is-no-match-for-inflation------------------------------------
Soares’s salon wasn’t exceptional in raising prices. Days before the minimum wage hike went into effect, Maduro raised prices on sugar, rice, and poultry, whose prices are set by the government. The cost of rice and sugar nearly doubled; that of poultry more than doubled. Further increases are forecast, including a hike in the electricity rate, which has been frozen since 2003, and a possible rise in domestic gasoline prices. The latter haven’t been raised since the late 1990s, enabling Venezuelans to fill their tanks today for less than a U.S. dime.
Maduro and his economic team point out that Venezuela now has one of the region’s highest minimum wages at 4,250 bolivars. That comes to $675 if the official exchange rate of 6.3 bolivars to the dollar is used. But that’s a misleading figure because few prices are set using the official rate.
Most use the SICAD2 exchange rate, which is determined by an auction of dollars. That rate is now around 50 bolivars to the dollar. At that rate, Venezuela’s minimum wage is $85 a month, or about $3 a day. Maduro said the government may raise the minimum wage yet again in the fourth quarter as the country faces its worst economic crisis since the late President Hugo Chavez was sworn in as president in 1999. The government has a fiscal deficit of 15 percent of gross domestic product. Oil production is falling, an important factor because crude sales account for 95 percent of the country’s hard currency.
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The government has tried to combat inflation by controlling prices and mandating that merchants charge “just prices” for their goods. Last weekend thousands of government agents visited stores to make sure that the new price law was being enforced. “The fair price law will help to brake price increases a bit, but it will also cause more shortages,’’ says Liscano.