BRV UNVEILS NATIONAL INFLATION INDEX

C O N F I D E N T I A L CARACAS 000493

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E.O. 12958: DECL: 01/10/2018
TAGS: ECON EFIN VE
SUBJECT: BRV UNVEILS NATIONAL INFLATION INDEX

REF: A. CARACAS 313

B. CARACAS 136

C. 2007 CARACAS 1031

Classified By: Acting Economic Counselor Shawn Flatt for reasons 1.4
(b) and (d).


1. (SBU) Summary: The Central Bank (BCV) and National
Statistics Institute (INE) unveiled on April 7 a national
consumer price index (CPI-N),which replaces the metropolitan
Caracas index (CPI-C) as the BRV's official inflation
measure. According to the CPI-N, prices rose 3.1, 2.1, and
1.7 percent in January, February, and March, respectively,
for an accumulated inflation of 7.1 percent in the first
quarter of 2008. Independent economic analysts see the
objective of developing a national index as laudable but have
expressed doubts about the potential for manipulation. End
summary.


2. (U) Following a pre-announced plan, on April 7 the BCV
and INE published the CPI-N for the first three months of

2008. Per the CPI-N, which is legally now the BRV's official
measure, inflation was 3.1, 2.1, and 1.7 percent in January,
February, and March, respectively, for an accumulated
three-month total of 7.1 percent. The CPI-N marks a
significant change from the previous official measure, an
index covering metropolitan Caracas (itself recently revised
- see ref B) elaborated by the BCV. The CPI-N, in contrast,
covers 10 major cities and 74 other localities, with the
fieldwork shared between INE and the BCV. According to the
BCV, separate indices for each of the 10 cities, including
the CPI-C, will be published on April 11. Continued
publication of the CPI-C is significant, as it will allow for
historical comparisons. (Note: One could not compare
inflation in January 2007 and January 2008 using the CPI-C
for 2007 and the CPI-N for 2008, for example, as they measure
different things. End note.) The CPI-N showed slightly
lower inflation for January and February than the CPI-C,
which put inflation in Caracas at 3.4 and 2.3 percent for
those two months.


3. (SBU) In a presentation explaining the rollout of the
CPI-N, the BCV and INE were careful to portray the changes as
moving Venezuela's indicator toward international best
practices. Independent economic analysts have generally
characterized the stated objectives of the new index as
laudable but view its actual implementation with varying
degrees of skepticism. One key concern is the large role
carved out for INE, an agency that falls under the Ministry
of People's Power for Planning and Development and has a
history of producing questionable statistics where political
issues are at stake (ref C). (Note: The breakdown of
responsibilities between the BCV and INE is not clear, but it
appears that INE will have responsibility for conducting
price surveys outside Caracas and Maracaibo. End note.)
While noting that the BCV and INE have been working to
develop the CPI-N for some time, a former BCV statistician
told Econoff that INE's technical capabilities were not as
good as the BCV's and that INE staff were likely subject to
more political pressure. Another local analyst argued that
the many unspecified details of the CPI-N, such as what
establishments and what goods and services would be surveyed,
offered ample opportunities for manipulation.


4. (C) Comment: In a country less politically polarized or
where inflation was not a major concern, the development of a
national inflation index would be uncontroversial. In
Venezuela, with inflation an important political issue and
given the BRV's penchant for manipulating numbers, analysts'
skepticism is understandable. Indeed, we would be surprised
if the BRV did not use the rollout of the CPI-N to make some
methodological tweaks that would cause inflation to appear
lower, at least initially. Manipulating numbers, however,
cannot mask the increasing dent that rising prices are having
on household purchasing power (ref A). End comment.
DUDDY