WEBVTT - 70: Cafe Con Leche Can Track Hyperinflation in Venezuela 0:00:00.000 --> 0:00:02.560 I mean, really, there's no country in the world that's 0:00:02.560 --> 0:00:06.080 got inflation anywhere near these levels. You don't see that 0:00:06.120 --> 0:00:17.320 anywhere else in the world right now. Hello, and welcome 0:00:17.360 --> 0:00:20.919 back to Bloomberg Benchmark Show about the global economy, and 0:00:20.960 --> 0:00:23.200 a very happy new year to all of our listeners 0:00:23.200 --> 0:00:26.840 and fans. I'm Scott landman and economics editor with Bloomberg 0:00:26.880 --> 0:00:30.120 News in Washington. Today I'm flying solo as your host 0:00:30.160 --> 0:00:32.320 because Dan and Kate were unable to be with us, 0:00:32.680 --> 0:00:35.760 but I'm very glad to have my colleague David Popadopoulos, 0:00:36.240 --> 0:00:39.600 Managing editor at Bloomberg in New York, joining me today 0:00:39.680 --> 0:00:43.720 for the show. Hey, David, how's it going excellent? Scott. Economics, 0:00:43.760 --> 0:00:45.800 in one sense of the word, is what we call 0:00:45.880 --> 0:00:49.080 the tracking of the blizzard of indexes that we get 0:00:49.120 --> 0:00:52.320 on a regular basis all over the world to track 0:00:52.440 --> 0:00:56.600 the relative strength of different economies. UH covers everything from 0:00:56.680 --> 0:01:01.320 GDP to the labor market to inner national trade and 0:01:01.320 --> 0:01:04.880 and also whether prices are rising or falling. And it's 0:01:04.920 --> 0:01:08.200 that last measure that we are here to discuss today. 0:01:08.360 --> 0:01:12.040 The country is Venezuela, and the index is something we 0:01:12.160 --> 0:01:17.759 created all by ourselves. It's called the Cafe con La index, Yes, Scott, So, 0:01:18.160 --> 0:01:24.040 Unlike most inflation indexes, this one isn't exactly scientific. Um. 0:01:24.160 --> 0:01:28.560 It tracks just one product, a single cup of coffee 0:01:28.680 --> 0:01:31.319 serve piping hot at a baker in eastern Caracas, the 0:01:31.400 --> 0:01:38.679 capital of Venezuela. Yet the index plugs a gap in 0:01:38.680 --> 0:01:42.360 Inflation is rising so fast in Venezuela, and the government 0:01:42.400 --> 0:01:45.440 is so embarrassed by the pace of price increases that 0:01:45.480 --> 0:01:50.320 it stopped publishing the data a long time ago. Uh So, 0:01:50.920 --> 0:01:57.200 and the drum roll, please, excellent drum roll, Scott. As 0:01:57.200 --> 0:02:00.920 of this week, our capic N index reached eight hundred 0:02:00.920 --> 0:02:05.040 and forty nine percent. That is the annualized inflation rate 0:02:05.120 --> 0:02:07.840 we have from the index. Now, we don't have a 0:02:07.920 --> 0:02:11.919 full year's worth of data yet um on the price 0:02:11.960 --> 0:02:15.520 of coffee in our index. But since we began collecting 0:02:15.560 --> 0:02:18.679 the figures back in August, we've seen massive, back to 0:02:18.880 --> 0:02:23.120 back to back price increases in just a span of 0:02:23.160 --> 0:02:26.799 several weeks in some occasions. And that that's compared with 0:02:26.800 --> 0:02:29.840 what like two percent, just under two percent really right 0:02:29.880 --> 0:02:33.799 now in the US. And you had inflation peaking attent 0:02:33.919 --> 0:02:37.919 in yeah and and beyond the U s Scot I mean, really, 0:02:37.919 --> 0:02:41.639 there's no country in the world that's got inflation anywhere 0:02:41.919 --> 0:02:44.639 near these levels right now. Hyper inflation. Of course, there's 0:02:44.639 --> 0:02:47.440 been plenty of episodes in the past where hyper inflation 0:02:47.520 --> 0:02:49.080 was kind of in vogue. I mean in the bad 0:02:49.120 --> 0:02:50.720 sense of the word. You know that you you had 0:02:50.800 --> 0:02:53.000 hyper inflation every bouts into their places. You don't see 0:02:53.040 --> 0:02:55.480 that anywhere else in the world right now. Uh. Steve 0:02:55.520 --> 0:02:58.320 Hankey of Johns Hopkins University has kept track of this, 0:02:58.840 --> 0:03:04.919 and nothing remote compares with Hungary in forty six, which 0:03:05.680 --> 0:03:09.240 get this, it hit a monthly rate of forty two 0:03:09.360 --> 0:03:14.399 quadrillion percent, which means prices doubling every fifteen hours. Do 0:03:14.400 --> 0:03:16.120 do we ever use quadrup don't. I don't even know 0:03:16.200 --> 0:03:18.680 what mathematically that would look like. That it was it 0:03:18.760 --> 0:03:22.440 was ten to the sixteen power Um. You know got 0:03:22.520 --> 0:03:26.040 Germany's Weimar Republic in the nineteen twenties hit a mirror 0:03:26.639 --> 0:03:30.520 twenty nine thousand five percent, which is, you know, it's nothing. 0:03:30.560 --> 0:03:33.360 Even though that's held out as the main example in 0:03:33.400 --> 0:03:37.400 recent years, Zimbabwe has often made headlines with its hyper inflation. 0:03:37.840 --> 0:03:41.520 About ten years ago that was at eighty billion percent. 0:03:42.120 --> 0:03:45.320 Now we're going to get an underground perspective of this issue. 0:03:45.520 --> 0:03:49.240 Joining us on the phone is Fabio, a correspondent in 0:03:49.240 --> 0:03:52.760 our Caracas bureau who has helped get these regular updates 0:03:52.760 --> 0:03:57.520 for the cafe index. Fabiola, thanks for joining us, Thanks 0:03:57.520 --> 0:04:01.800 for having me here. So what does a cafe con 0:04:01.880 --> 0:04:05.880 l a cost? Right now? In Venezuela, Benesela has two 0:04:05.920 --> 0:04:10.040 sets of prices. One is the due to the official 0:04:10.320 --> 0:04:13.800 eccentch rate and the other the unofficial exchange rates, so 0:04:14.200 --> 0:04:17.960 the prices vary a lot. So um. By the official 0:04:18.040 --> 0:04:22.159 exchange rate, you can buy a couple of carin let 0:04:22.839 --> 0:04:26.320 a cafe or a cup of coffee for one dollar 0:04:26.360 --> 0:04:29.520 and six or three cents. That's the official exchange rate. 0:04:29.880 --> 0:04:34.039 That it's around six hundred and seventy believers per dollar. 0:04:34.560 --> 0:04:38.040 But if you if you compare it to unofficial rate, 0:04:38.920 --> 0:04:43.920 it's about thirty five cents the cup of coffee, so um, 0:04:43.960 --> 0:04:47.880 because the unofficial rate is around three thousand and two 0:04:47.960 --> 0:04:52.480 hundred boliveries per dollar. So that gives you the whole 0:04:52.560 --> 0:04:56.479 view of the difference of prices of cafe con letter here. 0:04:56.680 --> 0:04:59.760 So when it comes to the actual hit to somebody's pocket, 0:05:00.279 --> 0:05:02.720 what does it feel like for people in Venezuela. Is 0:05:02.760 --> 0:05:06.560 it the thirty two cents or is it the dollar sixty? Uh? Well, 0:05:06.720 --> 0:05:13.920 people in Veneseta here have that consuming because it's very 0:05:13.960 --> 0:05:17.400 that the price go prices go up every two months, 0:05:17.800 --> 0:05:21.440 as the index shows. So um, a couple of coffees 0:05:21.520 --> 0:05:24.840 really a luxury here? Is there any way David to 0:05:25.240 --> 0:05:28.720 kind of put in perspective what what this means in 0:05:28.880 --> 0:05:32.440 someone's wallet in Venezuela with a scarcity, like just a 0:05:32.520 --> 0:05:35.719 regular cup of coffee at Starbucks here costs two dollars, 0:05:35.760 --> 0:05:37.560 you can you can spend a few dollars if you 0:05:37.600 --> 0:05:40.520 want something more complicated like a latte and other drinks. 0:05:41.200 --> 0:05:45.320 What are we talking about? So in our index we 0:05:45.400 --> 0:05:48.719 have and this is actually a price that Fabiola gets 0:05:48.720 --> 0:05:52.320 from from a cafe a bakery in eastern Caracas. We 0:05:52.400 --> 0:05:55.239 have it at roughly one thousand, one hundred bowl of ours. 0:05:55.279 --> 0:05:57.000 And and and for a little bit of perspective on 0:05:57.000 --> 0:06:00.520 that one thousand, one hundred bull of ours I leave 0:06:01.040 --> 0:06:05.240 is uh is a very significant actually chunk of what 0:06:05.360 --> 0:06:07.720 the the essentially the minimum wage would be in Venezuela. 0:06:07.800 --> 0:06:09.640 Fabula correct me if I'm wrong. I believe the minimum 0:06:09.640 --> 0:06:14.080 wage when you include um, food subsidies and everything that 0:06:14.080 --> 0:06:16.760 people get is something like what a hundred and thirty 0:06:16.839 --> 0:06:19.840 thousand bolivars a month? Is that right? What's the exactly? Yes, 0:06:19.920 --> 0:06:23.280 that's correct, that's the latest. So when when you're when 0:06:23.320 --> 0:06:25.599 you're for and and there are many folks who would 0:06:25.600 --> 0:06:28.559 be around that minimum wage number, you're making a hundred 0:06:28.640 --> 0:06:31.360 thirty thousand boliv ours a month, and one cup of 0:06:31.400 --> 0:06:34.599 coffee uh is one thousand, one hundred bole of ours. Uh. 0:06:34.839 --> 0:06:38.000 It's a significant amount of money. So Scott in other words, 0:06:38.720 --> 0:06:41.680 of your yeah, your monthly expenses exactly. So if you 0:06:42.320 --> 0:06:44.479 that you do in one day exactly if you were 0:06:44.480 --> 0:06:47.640 and I you or I were to show up in Venezuela, uh, 0:06:47.680 --> 0:06:51.200 and and you know most people frankly buying sell dollars 0:06:51.200 --> 0:06:53.440 in the black market, it would be pennies for us, 0:06:53.480 --> 0:06:55.640 it would be insignificant. But if you are in Venezuelan 0:06:56.120 --> 0:06:59.560 earning in bouliv oars the local currency, yeah, it's suddenly 0:06:59.600 --> 0:07:03.760 become prohibitively expensive. So it's business gotten a lot slower. 0:07:04.000 --> 0:07:08.120 Fabiola places that you know that sell cafic on late chase, 0:07:08.440 --> 0:07:12.480 those kinds of cafes. Cafricnetto was usually what you got 0:07:12.520 --> 0:07:16.200 in the morning, you stopped at the local bakery and 0:07:16.320 --> 0:07:21.200 got a cup of coffee and something to eat very fast. 0:07:21.520 --> 0:07:25.520 But nowadays the bakeries, you know, they're not selling him 0:07:25.640 --> 0:07:30.240 very much. Cafric Connette there, it's become luxury to the 0:07:30.320 --> 0:07:34.240 Venezuelana don't have any of those places had to close. No, no, no, 0:07:34.280 --> 0:07:39.040 not too close because they sell all the things. But um, 0:07:39.080 --> 0:07:43.120 you know, the really complex thing about the cafric Connett 0:07:43.200 --> 0:07:46.400 is that it's a product made of the staples that 0:07:46.600 --> 0:07:51.240 are very scarce here in Venezuela with the current crisis. 0:07:51.720 --> 0:07:55.480 It's sugar, milk and coffee, and those are the three 0:07:55.480 --> 0:07:59.680 staples that we Venezuela has to import these days. For instance, 0:08:00.240 --> 0:08:03.440 back in ten ten years ago, we were so sufficient 0:08:03.560 --> 0:08:07.720 in milk and coffee and sugar, but nowadays we have 0:08:07.760 --> 0:08:11.760 to import roughly seventy five percent of the coffee. We 0:08:12.080 --> 0:08:15.160 we can shu him that it's a that's it's a 0:08:15.240 --> 0:08:19.480 very big dramatic paint for the cafic one. They say 0:08:19.520 --> 0:08:23.360 here as as a staples say it said. At the beginning, 0:08:24.080 --> 0:08:25.840 my thought was that you know what I remember when 0:08:25.840 --> 0:08:28.840 I lived in Venezuela in the ninety nineties, actually right 0:08:28.920 --> 0:08:32.440 up to the time Hugo Chavez took office. In you 0:08:32.679 --> 0:08:35.600 you walk into any one of these bakeries and the 0:08:35.600 --> 0:08:38.680 cafe was something that just they just moved massive quantities 0:08:38.720 --> 0:08:40.440 of It was almost kind of like a lost leader, right. 0:08:40.480 --> 0:08:42.199 It was helped was what you did. You sold to 0:08:42.240 --> 0:08:43.760 help get people in the door. And then they were 0:08:43.760 --> 0:08:45.680 in the door, they bought a cafe, and they bought 0:08:45.679 --> 0:08:47.839 a they bought a loaf of venezuela and bread, and 0:08:47.880 --> 0:08:49.800 then they know, they see something else and something else 0:08:49.800 --> 0:08:52.400 and something else, and you know, it was just something 0:08:52.440 --> 0:08:54.400 that's just sort of helped churn you. You would turn 0:08:54.480 --> 0:08:57.120 massive volumes and and you really get the sense that, yeah, 0:08:57.120 --> 0:08:59.680 that that is slowed quite a bit. So are we 0:08:59.679 --> 0:09:02.640 gonna have to change this index pretty soon? If if 0:09:02.640 --> 0:09:06.640 nobody nobody's buying, well, you know, Fabiola and I will 0:09:06.640 --> 0:09:08.520 certainly think about it. I think the issue you have 0:09:08.720 --> 0:09:10.319 is that I don't know that people are consuming much 0:09:10.320 --> 0:09:14.520 of anything, So we would start to uh have to 0:09:14.559 --> 0:09:17.520 think hard about what we would latch onto if it 0:09:17.600 --> 0:09:20.320 weren't Catholic. On that well, well, maybe Fabila can talk 0:09:20.360 --> 0:09:23.239 about you know what about other basic goods in Venezuela. 0:09:23.280 --> 0:09:25.280 I mean, how are people Can we measure inflation by 0:09:25.320 --> 0:09:28.080 their prices or how are people paying for them? Are 0:09:28.120 --> 0:09:32.080 they fixed prices and how does how does that work? 0:09:32.360 --> 0:09:35.800 As I said before, it's like two works to dimensional 0:09:35.960 --> 0:09:40.440 economy because you have fixed prices. The government has set 0:09:40.880 --> 0:09:48.360 prices for stables like sugar, coffee, milk, meat, but you 0:09:48.400 --> 0:09:53.400 can also find those tables at an official rate. So 0:09:53.600 --> 0:10:00.360 you have like two economies. And yes, these tables sugar, coffee, milk, 0:10:00.720 --> 0:10:04.880 So there they have hit the cyling, I mean, and 0:10:04.920 --> 0:10:11.040 they're very very scars and you have to accute a 0:10:11.120 --> 0:10:14.839 lot to get uh coffee, these tables on the fixed 0:10:14.920 --> 0:10:18.280 price if you want, if you can't afford to queue 0:10:18.320 --> 0:10:22.280 for five hours for three hours, or you just can't 0:10:22.320 --> 0:10:26.720 find them in in your neighborhood, or you have to 0:10:26.800 --> 0:10:32.040 buy them at an official rate. So um, yes, you 0:10:32.080 --> 0:10:37.319 can measure inflation by these tables like flour, corn flower. 0:10:38.000 --> 0:10:42.439 Uh they're going up every every month if you measured 0:10:42.520 --> 0:10:46.160 it by the an official rate. But the fixed prices 0:10:46.200 --> 0:10:49.120 of the government they have to They have been adjusting 0:10:49.160 --> 0:10:54.480 these tables uh every three to four months and the 0:10:54.679 --> 0:10:59.600 last uh year that's uh, that's it tour the kind 0:10:59.640 --> 0:11:04.440 of at prices, uh you see on every product now 0:11:05.040 --> 0:11:08.960 one puzzle for a lot of us outside Venezuela, the 0:11:09.000 --> 0:11:12.200 outside looking in is you know, things have been in 0:11:12.200 --> 0:11:16.520 such bad shape now for some time, but we wonder why, 0:11:17.400 --> 0:11:21.679 uh Mr Maduro continues to remain in power. You know, 0:11:21.800 --> 0:11:26.000 what point does you know, does the pressure become so 0:11:26.160 --> 0:11:29.560 overwhelming that there is some kind of political regime change 0:11:29.559 --> 0:11:31.800 in Venezuela. Right, Well, it's Scott. That's kind of the 0:11:32.080 --> 0:11:34.360 million dollar question. And that's something that folks have been 0:11:34.400 --> 0:11:36.840 asking for an awful long time. I mean, you know, 0:11:36.880 --> 0:11:39.439 I was recalling the other day that you know, his predecessor, 0:11:39.880 --> 0:11:44.240 Chob is the man who essentially h hand picked Mr 0:11:44.280 --> 0:11:48.400 mother Would to run the country and succeed him. Um, 0:11:48.480 --> 0:11:51.160 you know, there was there was the scuttle button caroc 0:11:51.280 --> 0:11:53.160 Is back in the late nineties when Chob was taking 0:11:53.200 --> 0:11:56.600 office that oh that he was going his administration was 0:11:56.600 --> 0:11:58.720 going to collapse imminently at any point in time, and 0:11:58.720 --> 0:12:00.719 that he was going to be impeede immediately. And here 0:12:00.720 --> 0:12:03.520 we are twenty years later, and uh, and and the 0:12:03.840 --> 0:12:06.760 and the regime as it's to be understood, uh with 0:12:06.880 --> 0:12:09.480 Mr Motherwood was succeeding him is still there. Uh. I mean, 0:12:09.480 --> 0:12:11.080 I think it is a head scratcher even for a 0:12:11.080 --> 0:12:14.640 lot of Venezuelans um because when you look at just 0:12:14.760 --> 0:12:19.040 how bad things are, how dysfunctional that place has become. Uh, 0:12:19.640 --> 0:12:22.840 it's hard to understand how they're holding on. I will 0:12:22.840 --> 0:12:24.960 say this that there has been a big push to 0:12:25.000 --> 0:12:29.360 recall the president. Uh they the opposition certainly has gathered 0:12:29.480 --> 0:12:32.160 enough signatures to make that happen. But but the government 0:12:32.160 --> 0:12:35.120 has put up one obstacle after another after another to 0:12:35.280 --> 0:12:38.280 block it. And Uh, you're in this sort of holding 0:12:38.320 --> 0:12:42.520 pattern that we've seen, frankly for for a pretty long time. 0:12:42.920 --> 0:12:45.599 And is the country still able to sell oil or 0:12:45.640 --> 0:12:48.880 has that stuff? It does? It does? Oil production is down, 0:12:49.080 --> 0:12:53.520 exports are down, but it still does uh export. I 0:12:53.559 --> 0:12:55.960 believe it's producing. I mean again, there are no official 0:12:56.040 --> 0:12:58.240 figures really, but estimates would put it in the ballpark 0:12:58.280 --> 0:13:00.920 of two and a half million, I believe all the day. 0:13:00.960 --> 0:13:04.079 You know, before Mr Travis took office in the late nineties, 0:13:04.120 --> 0:13:07.600 the vision of the previous administration was to ramp up 0:13:07.640 --> 0:13:10.880 output to somewhere around five million barrels or so plus. 0:13:10.880 --> 0:13:14.559 This is the country with the world's largest oil reserves. 0:13:14.960 --> 0:13:18.080 And yet all we've seen, unfortunately over the past two decades, 0:13:18.679 --> 0:13:21.160 certainly unfortunate for the Venezuela and people who are now 0:13:21.200 --> 0:13:25.800 becoming deeply impoverished is declining output. So fabiola. You know, 0:13:25.960 --> 0:13:29.320 if you had to sum up the mood of people, 0:13:30.080 --> 0:13:32.600 uh that you talked to on a regular basis, or 0:13:33.360 --> 0:13:38.360 people around Caracas, around Venezuela looking at how you know, 0:13:38.520 --> 0:13:41.000 how how much the economy has sung, how much inflation 0:13:41.080 --> 0:13:44.160 is growing, what would you say? Well, if you asked 0:13:44.200 --> 0:13:49.600 me the question about six months ago, people were very angry, 0:13:49.840 --> 0:13:54.920 I mean up until December, very angry at the situation, 0:13:55.440 --> 0:14:01.520 very frustrated, but in more and more openly talking against 0:14:01.520 --> 0:14:06.320 the government at every corner, at every street. UM. In 0:14:06.400 --> 0:14:10.480 contrast to a year or two years ago where people 0:14:11.360 --> 0:14:15.080 did not connect the bat shape of the economy to 0:14:15.240 --> 0:14:20.320 the running of the politics. But nowadays, after well the 0:14:20.400 --> 0:14:23.160 major blow at December that there was not going to 0:14:23.200 --> 0:14:27.040 be a referendum, UM, the mood in the streets is 0:14:27.280 --> 0:14:32.240 very depressed. People are very sad. The mood is pretty 0:14:32.680 --> 0:14:36.960 h low. UM. In contrast to three months ago where 0:14:37.360 --> 0:14:40.680 UM many Venezuela thoughts. The reference recal was going to 0:14:40.760 --> 0:14:44.480 happen some way, and there were demonstrations as the streets 0:14:44.640 --> 0:14:51.240 and but um slowly the government curtailed um that possibility 0:14:51.880 --> 0:14:55.720 at the High Court ruled against it. So um, the 0:14:55.760 --> 0:15:00.360 mood is very um sad I mean U that's how 0:15:00.400 --> 0:15:04.120 I perceive it today. Well, it doesn't sound like a 0:15:04.120 --> 0:15:07.800 good situation by any means, But Fabriola, we will definitely 0:15:08.600 --> 0:15:12.040 look forward to your reporting in the coming months on 0:15:12.120 --> 0:15:16.040 the situation there. Thanks so much for joining us, Fabriola perfect, 0:15:16.400 --> 0:15:18.640 Thank you, and thank you David for joining us to 0:15:19.040 --> 0:15:22.920 my pleasure. Benchmark will be back next week and until then, 0:15:23.000 --> 0:15:25.360 you can find us on the Bloomberg terminal and Bloomberg 0:15:25.440 --> 0:15:29.040 dot com, as well as on iTunes, Pocketcast, Stitcher, and 0:15:29.080 --> 0:15:32.600 the revamped Bloomberg app. While you're there, take a minute 0:15:32.680 --> 0:15:35.040 to rate and review the show so more listeners can 0:15:35.080 --> 0:15:37.400 find us. Let us know what you thought of the show. 0:15:37.480 --> 0:15:41.560 You can follow me on Twitter at at scott Landman. 0:15:42.160 --> 0:15:45.080 Our guest Fabriola is at at Z E R P 0:15:45.360 --> 0:15:49.000 I U S and just one final note. Benchmark is 0:15:49.040 --> 0:15:52.160 produced by Sarah Patterson. The head of Bloomberg Podcast is 0:15:52.200 --> 0:16:00.200 Alec McCabe. Thanks for listening, See you next time. The 0:16:04.080 --> 0:16:10.200 Pater b My Finger four