70: Cafe Con Leche Can Track Hyperinflation in Venezuela

News in Washington. Today I'm flying solo as your host because Dan and Kate were unable to be with us, but I'm very glad to have my colleague David Popadopoulos, Managing editor at Bloomberg in New York, joining me today for the show. Hey, David, how's it going excellent? Scott. Economics, in one sense of the word, is what we call the tracking of the blizzard of indexes that we get on a regular basis all over the world to track

the relative strength of different economies. UH covers everything from GDP to the labor market to inner national trade and and also whether prices are rising or falling. And it's that last measure that we are here to discuss today. The country is Venezuela, and the index is something we created all by ourselves. It's called the Cafe con La index, Yes, Scott, So,

Unlike most inflation indexes, this one isn't exactly scientific. Um. It tracks just one product, a single cup of coffee serve piping hot at a baker in eastern Caracas, the capital of Venezuela. Yet the index plugs a gap in Inflation is rising so fast in Venezuela, and the government is so embarrassed by the pace of price increases that it stopped publishing the data a long time ago. Uh So,

and the drum roll, please, excellent drum roll, Scott. As of this week, our capic N index reached eight hundred and forty nine percent. That is the annualized inflation rate we have from the index. Now, we don't have a full year's worth of data yet um on the price of coffee in our index. But since we began collecting the figures back in August, we've seen massive, back to back to back price increases in just a span of

several weeks in some occasions. And that that's compared with what like two percent, just under two percent really right now in the US. And you had inflation peaking attent in yeah and and beyond the U s Scot I mean, really, there's no country in the world that's got inflation anywhere near these levels right now. Hyper inflation. Of course, there's been plenty of episodes in the past where hyper inflation was kind of in vogue. I mean in the bad sense of the word. You know that you you had

hyper inflation every bouts into their places. You don't see that anywhere else in the world right now. Uh. Steve Hankey of Johns Hopkins University has kept track of this, and nothing remote compares with Hungary in forty six, which get this, it hit a monthly rate of forty two quadrillion percent, which means prices doubling every fifteen hours. Do do we ever use quadrup don't. I don't even know what mathematically that would look like. That it was it

was ten to the sixteen power Um. You know got Germany's Weimar Republic in the nineteen twenties hit a mirror twenty nine thousand five percent, which is, you know, it's nothing. Even though that's held out as the main example in recent years, Zimbabwe has often made headlines with its hyper inflation. About ten years ago that was at eighty billion percent. Now we're going to get an underground perspective of this issue.

Joining us on the phone is Fabio, a correspondent in our Caracas bureau who has helped get these regular updates for the cafe index. Fabiola, thanks for joining us, Thanks for having me here. So what does a cafe con l a cost? Right now? In Venezuela, Benesela has two sets of prices. One is the due to the official eccentch rate and the other the unofficial exchange rates, so

the prices vary a lot. So um. By the official exchange rate, you can buy a couple of carin let a cafe or a cup of coffee for one dollar and six or three cents. That's the official exchange rate. That it's around six hundred and seventy believers per dollar. But if you if you compare it to unofficial rate, it's about thirty five cents the cup of coffee, so um, because the unofficial rate is around three thousand and two

hundred boliveries per dollar. So that gives you the whole view of the difference of prices of cafe con letter here. So when it comes to the actual hit to somebody's pocket, what does it feel like for people in Venezuela. Is it the thirty two cents or is it the dollar sixty? Uh? Well, people in Veneseta here have that consuming because it's very that the price go prices go up every two months, as the index shows. So um, a couple of coffees

really a luxury here? Is there any way David to kind of put in perspective what what this means in someone's wallet in Venezuela with a scarcity, like just a regular cup of coffee at Starbucks here costs two dollars, you can you can spend a few dollars if you want something more complicated like a latte and other drinks. What are we talking about? So in our index we have and this is actually a price that Fabiola gets

from from a cafe a bakery in eastern Caracas. We have it at roughly one thousand, one hundred bowl of ours. And and and for a little bit of perspective on that one thousand, one hundred bull of ours I leave is uh is a very significant actually chunk of what the the essentially the minimum wage would be in Venezuela. Fabula correct me if I'm wrong. I believe the minimum wage when you include um, food subsidies and everything that people get is something like what a hundred and thirty

thousand bolivars a month? Is that right? What's the exactly? Yes, that's correct, that's the latest. So when when you're when you're for and and there are many folks who would be around that minimum wage number, you're making a hundred thirty thousand boliv ours a month, and one cup of coffee uh is one thousand, one hundred bole of ours. Uh. It's a significant amount of money. So Scott in other words,

of your yeah, your monthly expenses exactly. So if you that you do in one day exactly if you were and I you or I were to show up in Venezuela, uh, and and you know most people frankly buying sell dollars in the black market, it would be pennies for us, it would be insignificant. But if you are in Venezuelan earning in bouliv oars the local currency, yeah, it's suddenly become prohibitively expensive. So it's business gotten a lot slower.

Fabiola places that you know that sell cafic on late chase, those kinds of cafes. Cafricnetto was usually what you got in the morning, you stopped at the local bakery and got a cup of coffee and something to eat very fast. But nowadays the bakeries, you know, they're not selling him very much. Cafric Connette there, it's become luxury to the Venezuelana don't have any of those places had to close. No, no, no,

not too close because they sell all the things. But um, you know, the really complex thing about the cafric Connett is that it's a product made of the staples that are very scarce here in Venezuela with the current crisis. It's sugar, milk and coffee, and those are the three staples that we Venezuela has to import these days. For instance, back in ten ten years ago, we were so sufficient in milk and coffee and sugar, but nowadays we have

to import roughly seventy five percent of the coffee. We we can shu him that it's a that's it's a very big dramatic paint for the cafic one. They say here as as a staples say it said. At the beginning, my thought was that you know what I remember when I lived in Venezuela in the ninety nineties, actually right

up to the time Hugo Chavez took office. In you you walk into any one of these bakeries and the cafe was something that just they just moved massive quantities of It was almost kind of like a lost leader, right. It was helped was what you did. You sold to

help get people in the door. And then they were in the door, they bought a cafe, and they bought a they bought a loaf of venezuela and bread, and then they know, they see something else and something else and something else, and you know, it was just something that's just sort of helped churn you. You would turn massive volumes and and you really get the sense that, yeah, that that is slowed quite a bit. So are we

gonna have to change this index pretty soon? If if nobody nobody's buying, well, you know, Fabiola and I will certainly think about it. I think the issue you have is that I don't know that people are consuming much of anything, So we would start to uh have to think hard about what we would latch onto if it weren't Catholic. On that well, well, maybe Fabila can talk about you know what about other basic goods in Venezuela. I mean, how are people Can we measure inflation by

their prices or how are people paying for them? Are they fixed prices and how does how does that work? As I said before, it's like two works to dimensional economy because you have fixed prices. The government has set prices for stables like sugar, coffee, milk, meat, but you can also find those tables at an official rate. So

you have like two economies. And yes, these tables sugar, coffee, milk, So there they have hit the cyling, I mean, and they're very very scars and you have to accute a lot to get uh coffee, these tables on the fixed price if you want, if you can't afford to queue for five hours for three hours, or you just can't find them in in your neighborhood, or you have to buy them at an official rate. So um, yes, you can measure inflation by these tables like flour, corn flower.

Uh they're going up every every month if you measured it by the an official rate. But the fixed prices of the government they have to They have been adjusting these tables uh every three to four months and the last uh year that's uh, that's it tour the kind of at prices, uh you see on every product now one puzzle for a lot of us outside Venezuela, the outside looking in is you know, things have been in such bad shape now for some time, but we wonder why,

uh Mr Maduro continues to remain in power. You know, what point does you know, does the pressure become so overwhelming that there is some kind of political regime change in Venezuela. Right, Well, it's Scott. That's kind of the million dollar question. And that's something that folks have been asking for an awful long time. I mean, you know, I was recalling the other day that you know, his predecessor, Chob is the man who essentially h hand picked Mr

mother Would to run the country and succeed him. Um, you know, there was there was the scuttle button caroc Is back in the late nineties when Chob was taking office that oh that he was going his administration was going to collapse imminently at any point in time, and that he was going to be impeede immediately. And here we are twenty years later, and uh, and and the and the regime as it's to be understood, uh with

Mr Motherwood was succeeding him is still there. Uh. I mean, I think it is a head scratcher even for a lot of Venezuelans um because when you look at just how bad things are, how dysfunctional that place has become. Uh, it's hard to understand how they're holding on. I will say this that there has been a big push to recall the president. Uh they the opposition certainly has gathered

enough signatures to make that happen. But but the government has put up one obstacle after another after another to block it. And Uh, you're in this sort of holding pattern that we've seen, frankly for for a pretty long time. And is the country still able to sell oil or has that stuff? It does? It does? Oil production is down, exports are down, but it still does uh export. I

believe it's producing. I mean again, there are no official figures really, but estimates would put it in the ballpark of two and a half million, I believe all the day. You know, before Mr Travis took office in the late nineties, the vision of the previous administration was to ramp up output to somewhere around five million barrels or so plus. This is the country with the world's largest oil reserves.

And yet all we've seen, unfortunately over the past two decades, certainly unfortunate for the Venezuela and people who are now becoming deeply impoverished is declining output. So fabiola. You know, if you had to sum up the mood of people, uh that you talked to on a regular basis, or people around Caracas, around Venezuela looking at how you know, how how much the economy has sung, how much inflation

is growing, what would you say? Well, if you asked me the question about six months ago, people were very angry, I mean up until December, very angry at the situation, very frustrated, but in more and more openly talking against the government at every corner, at every street. UM. In contrast to a year or two years ago where people did not connect the bat shape of the economy to

the running of the politics. But nowadays, after well the major blow at December that there was not going to be a referendum, UM, the mood in the streets is very depressed. People are very sad. The mood is pretty h low. UM. In contrast to three months ago where UM many Venezuela thoughts. The reference recal was going to happen some way, and there were demonstrations as the streets and but um slowly the government curtailed um that possibility

at the High Court ruled against it. So um, the mood is very um sad I mean U that's how I perceive it today. Well, it doesn't sound like a good situation by any means, But Fabriola, we will definitely look forward to your reporting in the coming months on the situation there. Thanks so much for joining us, Fabriola perfect, Thank you, and thank you David for joining us to

my pleasure. Benchmark will be back next week and until then, you can find us on the Bloomberg terminal and Bloomberg dot com, as well as on iTunes, Pocketcast, Stitcher, and the revamped Bloomberg app. While you're there, take a minute to rate and review the show so more listeners can find us. Let us know what you thought of the show. You can follow me on Twitter at at scott Landman. Our guest Fabriola is at at Z E R P I U S and just one final note. Benchmark is

produced by Sarah Patterson. The head of Bloomberg Podcast is Alec McCabe. Thanks for listening, See you next time. The Pater b My Finger four