Venezuela Backs Away from price Controls as Citizens Go Hungry

             The major reason as to why it is vital to keep inflation in check is that it inevitably results in price controls. Unfortunately, this strategy is a cure that is always worse than the problem. Venezuela has tried and failed badly to cure inflation with this method. Currently, Venezuela suffers inflation crisis, and again controls are invoked. Prices are rising by more than past year and are expected to go even higher. Even with this fact, Venezuela kept a fixed exchange rate, which led to a serious divergence in prices on domestic goods, which have ended up being expensive. On the other hand, imports have stayed cheap because of the implemented fixed exchange rate.

            The exchange rate between the Venezuelan currency and the dollar was maintained at 2.15 to one from 2005 despite the huge inflation. As a result, the black market rate went up to 6.4 per dollar. The Venezuelan government ended up abruptly raising the exchange rate to 2.6 per dollar for essential items import like food and medicine. It also increases it to 4.3 on non-essential items like airline tickets. Worse of all, the black market rate became formalized and put under the central bank management. As imported goods significantly became more expensive, people lined up in the stores to buy as much of as they could prior price increase. Retailers, on the other hand, end up being prohibited from rising because they were bought before devaluation.

            It cannot be disputed that price controls can help to balance the supply-demand framework whereby people are protected against the increase in prices during inflation.  Unfortunately, this never happens as in the case of Venezuela.   People always expect manageable prices when price controls in a supply-demand are implemented but this always become a sure way to drive inflation as many go hungry.

Sherry Roberts is the author of this paper. A senior editor at Melda Research in help writing nursing research paper if you need a similar paper you can place your order for customized papers.