Latin America & Caribbean

Venezuela: Shoppers fear price caps will cause shortages

Fruit on a display in a supermarket in the Venezuelan capital, Caracas.
Image caption Sceptics fear the government's measures could backfire and result in shortages

Price controls on basic commodities are coming into force in Venezuela, where the government is battling to curb rampant inflation.

The rising price of basic goods is a perennial problem for the country.

"I have noticed that prices have increased since November," says Sara Kafrouni, a journalist who shops around three times a month for her and her teacher husband.

She cites the example of two dozen eggs she bought for around $3 (£1.90) in December, but which now cost twice as much.

She had $300 to spend on food this month, and thought she might have some left over to save. "I used it all on basic goods," she says.

Ordinary Venezuelans are struggling to keep up with price rises which saw inflation pushed to over 27% in 2011, one of the highest inflation rates in the world.

The issue could cost President Hugo Chavez vital votes in October's presidential election, in what is likely to be a tough test for him as tries to juggle campaigning with being treated for cancer.

Businesses blamed

Image caption President Chavez says businesses should profit in a "rational manner"

Venezuela has long been plagued by high inflation for many reasons, but the country's reliance on oil exports is a major factor.

With the world price for a barrel of oil over $100, plenty of money is entering the Venezuelan economy and distorting the local market, say economists at the Caracas-based think tank Econometrica.

President Chavez has blamed the private sector for price rises, calling businesses greedy.

His response has been to bring in price controls.

"We are not asking [companies] to lose money, only that they profit in a rational manner, and that they not steal from the people," Mr Chavez said in a televised speech in February.

In the initial phase, the caps will mostly affect cleaning and personal hygiene products, including deodorant, toothpaste and toilet roll.

The measures target products made by big multinational companies such as PepsiCo, Colgate-Palmolive, Unilever and their Venezuelan subsidiaries.

Mr Chavez has warned that businesses that do not comply with the new regulations could face expropriation.

Shortages ahead?

Critics of the government point out that while fixing prices will keep costs down, it could also lead to scarcity of these products.

"When firms set prices, they do so taking into account the costs they're going to face in the future and the amount of profits they need to generate in order to pay dividends on the one hand, but also reinvest or finance reinvestment in production on the other hand," says Angel Garcia from Econometrica.

"So whenever the amount of profits is below their expectations they simply reduce production."

In the past, there have been shortages of products that were subject to government price curbs.

President Chavez brought in price caps for basic commodities like milk, cooking oil and sugar a few years ago.

Finding those products in the supermarket has become a regular problem.

"I have to go to several different stores. Generally, I'll go to two or three supermarkets to get everything, and there are some things that you just can't ever find," says one housewife outside a suburban supermarket in Caracas.

"There are recipes I have that I want to make and I can't because I'll never find all the ingredients."

"I managed to get sugar here today," says another. "Milk - they have powdered but no fresh milk. There's no oil here. You've got to go to all the shops, buy one thing here and another thing there."

Data from the National Institute of Statistics suggest that there are regular shortages of more than a dozen basic products.

Many in Venezuela are braced for even more scarcity.

Mr Chavez lays the blame for scarcity of products at the feet of the "bourgeoisie", accusing them of hoarding basic goods.

But with the presidential election looming, the government will have to take care that shortages do not end up costing it votes.

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