Maduro government 'occupies' Venezuela electronics chain

[Yo_Mama]

88. I assume the same thing that everyone else thinks when they do this

But that is neither intelligent nor reasonable, given the long history of the results. The government just did not listen to the warnings it was given.

This is accelerating rapidly - over 5% inflation in the last month. The reason I say the situation is not stable is that at that rate, three month inflation is close to 16%.

Imagine that you are a farmer, and you need to sell your harvest for enough to cover the costs to put in and cultivate the next crop, plus get money for you and your family to live. If you were to sell your harvest as soon as it came in and put the money in the bank, in six months you might have lost 35-70% of your proceeds to inflation, which doesn't leave you enough money to eat and farm. If it gets worse, you may end up with 30% of your proceeds (70% loss), which may not even leave you enough money to eat.

So everyone stops selling or sells at high prices. If you don't sell much of your goods until you need to buy something else, then you don't lose the money. If you do sell, you charge what you believe will cover FUTURE prices, which feeds the galloping inflation.

Well, businessmen who stock goods are facing the same situation. Prices of market goods are not set on what they acquired them for, but on what they think they need to cover the cost of the replacement goods. Because otherwise they are going to go out of business very shortly. Suppose a business had 100 refrigerators it bought at 1400 bolivars, and it sells them for 1900 bolivars each - theoretically the business made 500 bolivars profit on each sale. But if the average replacement cost is now 2100 bolivars, then the business just went bankrupt.

Venezuela has to ration the supply of dollars it provides at the official exchange rate, so businesses are in dire trouble. And because locally produced goods are scarce, at the same time they have to ratchet up their profit margins in bolivars to cover the rising cost of necessities.

That's why central banks track inflation expectations - it is the anticipated cost of holding money that creates this situation.