Why many Venezuelans scoff at Chávez's minimum wage hike

You might think Venezuelans would be cheering this week over President Hugo Chávez's announcement that he will raise the minimum wage by 26.5 percent beginning May 1, or International Worker’s Day. Instead, workers here know all too well that annual inflation will eat right through their raise.

Inflation in 2011 is expected to hit between 28 percent and 30 percent, according to the local consultancy Ecoanalitica. Last year, inflation topped out near 27 percent and was among the highest rates worldwide, despite government price caps on most basic food items and energy costs.

While the president has raised the minimum wage every year since 1999 just in time to declare his revolutionary love for the worker ahead of May Day, many Venezuelans don't quite feel the affection since the raise has in recent years failed to keep pace with rising costs.

A local opposition paper ran a headline announcing that the new minimum wage hike is not enough to cover the cost of a “socialist arepa,” referring to a popular fried cornmeal patty. The first phase of the wage hike will raise wages 6 bolivares a day, less than the cost of an arepa sold at government-run shop.

By September, the minimum salary will be raised to 1,538 bolivares ($360) from the current 1,224 bolivares ($285), which still lags behind the minimum wages in Argentina and Chile.

And the numbers are misleading. The government officially sets the dollar exchange rate at 4.30 bolivares, but since the government so tightly controls the disbursement of dollars, the true rate is closer to 8.5 bolivares. Businesses turn to the black market for dollars when they can’t obtain government-subsidized dollars and set their prices accordingly, eroding consumers’ purchasing power even more.

Rising prices are most keenly felt in food costs, which the Central Bank says is the leading driver behind inflation here. The government regulates the price of many basic food brands, but such items are often missing from store shelves, forcing shoppers to buy more expensive imports that account for 70 percent of Venezuela’s food supplies.

The minimum wage hike came just after Mr. Chávez decreed a new windfall tax on oil companies operating in Venezuela, perhaps signaling how he intends to pay for this and other social spending ahead of an election next year.

According to the new royalties scheme, a 95 percent tax will be imposed on company profits when oil is above $100 per barrel. The higher tax could bring up to $16 billion in new revenues, which will be funneled into social development projects for health care, education, and housing, according to government officials.