UPDATE 2-Venezuela inflation slows in July for seventh month

Tue Aug 7, 2012 11:01pm IST

* Annual rate below 20 pct for first time since 2008

* Monthly rate was 1.0 pct, down from 1.4 pct in June

By Eyanir Chinea and Daniel Wallis

CARACAS, Aug 7 (Reuters) - Venezuela's annual inflation slowed for a seventh straight month in July, coming in below 20 percent for the first time in years and giving President Hugo Chavez a boost as he seeks re-election in October.

Finance Minister Jorge Giordani on Tuesday said annual inflation to July was 19.4 percent, below the 20 to 22 percent forecast in the socialist government's budget for this year.

"We have broken, punctured, the 20 percent threshold. ... This is good news regarding this complex, difficult, historical problem," Giordani told a news conference.

Monthly inflation slowed to 1.0 percent in July, he said, lower than the 1.4 percent recorded the previous month and well under the 2.7 percent rate of July 2011.

It was the first time the OPEC nation's annualized rate had fallen below 20 percent since 2008, when officials changed how the figure was calculated.

Venezuela recorded the highest annual inflation in the Americas last year, at 27.6 percent, and most economists had predicted it would be higher during 2012 because of a pre-election spending spree by Chavez's socialist government.

His administration, however, has had some success combating rises with new price controls in some basic areas, including food and health, that were put in place at the end of last year.

Economists question whether those controls are a sustainable solution, saying they might be artificially suppressing a major inflation spike later in the year.

There are also fears of shortages as some businesses opt not to sell rather than adhere to the price controls.

Chavez, who has a double-digit lead in most opinion polls ahead of the election, regularly reminds Venezuelans that high prices have dogged the nation for several decades.

The president's supporters say headline inflation figures mask the government's provision of subsidized food for the poor.

Venezuela's average annual inflation rate over the last 25 years has been well over 30 percent, with a peak of 103 percent in 1996 during the administration of Rafael Caldera.

Slowing inflation and better growth figures are enabling the government to boast of economic success during an election year, in contrast with woes in debt-plagued Europe.

Yet experts say Venezuela is heading for an economic hangover after the election. A third devaluation of the currency in as many years looks inevitable, while growth levels are likely to drop as the pre-vote spending spree ends and payments come due on growing international debt.

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