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In Venezuela, inflation and dollarization deepen schism between private and state employees

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© Reuters. FILE PHOTO: A local counts Venezuelan Bolivar notes in front of a mural depicting the late Venezuelan President Hugo Chavez in Caracas, Venezuela March 14, 2019. REUTERS/Ivan Alvarado

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By Mayela Armas and Anggy Polanco

CARACAS/SAN CRISTOBAL (Reuters) – Venezuela’s gradual shift to the U.S. dollar is widening inequality between its public and private sector workers, as those paid in foreign currency enjoy greater purchasing power while others face prohibitive prices, employees, pensioners and economists said.

Use of foreign currency has increased in the South American country since the government of President Nicolas Maduro relaxed economic controls in 2019, helping some businesses, but inflation of the bolivar, the official national currency, remains at 222% and recovery has been uneven.

State employees, whose salaries are paid mainly in bolivars and only sporadically increased, are the most affected. In the private sector, at least 63% of salaries are paid in dollars, according to the Venezuelan Finance Observatory, an independent economic research firm.

“We have been suffering from low wages for some time,” said Seyyer Chacon, a 43-year-old nurse at a public hospital in eastern San Cristobal.

“I don’t earn enough to change the oil in my car,” said Chacon, who earns 250 bolivars a month, equivalent to about $55.

The low wages have led public employees and retirees in the OPEC member nation to hold weekly protests demanding greater pay outside of labor ministry buildings in various cities.

In the first quarter of the year there were 700 worker protests, 27% more than in the same period of 2021, according to the non-governmental Venezuelan Observatory of Social Conflict.

“The hyperinflation responsible for today’s large transactions in dollars, which have allowed a slight recovery in some activities, has also deepened the differences between private sector and public sector salaries,” said Omar Zambrano, director of local research firm Anova Policy.

“Everything was dollarized, except in the public sector, which does not generate enough foreign currency and cannot pay higher salaries to its nearly 2 million employees.”

A limited government response has pushed some workers to leave their jobs altogether, said three union members who asked not to be named for fear of job security.

Staff shortages have affected the provision of basic services and the operations of state companies, the union sources added, including state-run oil company PDVSA, already battered by years of disinvestment, mismanagement and U.S. sanctions.

Venezuela’s labor ministry did not immediately respond to a request for comment. The country’s vice president, Delcy Rodríguez, said this week that when the country has more income, the well-being of workers will improve.

THE ‘SALARY IS NOT ENOUGH’

In Venezuela, public sector employees earn the equivalent of between $30 and $100 a month, according to the latest government salary revisions.

Meanwhile, private sector workers earn an average of between $106 dollars and $247 dollars per month, the Venezuelan Finance Observatory calculated in April.

Ramona Franco, 59, left her job as a teacher at a public school in Maracaibo, the capital of the once-rich oil state of Zulia, and now gets by selling $1 lunches.

“Years ago, being a teacher in Venezuela was an opportunity to grow because the salaries were enough to live on, but currently it is illogical – a teacher’s salary is not enough for a kilo of cheese,” said Franco, whose former salary was equivalent to just $15 dollars a month after 19 years of teaching.

That is well below the $300 average cost of basic family food needs.

Hernando Gonzalez, 23, has been working for two months as a waiter in coastal Maracaibo, where he earns a mixed salary of dollars and bolivars worth about $100.

Even his partial payment in foreign currency is not enough to ensure financial security.

“I try to extend my wage as long as I can for food and to meet my one-year-old son’s needs,” Gonzalez told Reuters.

Meanwhile, pensioners receive the bolivar equivalent of a minimum wage – about $30 dollars a month.

“I contributed 35 years to social security and my pension goes to buying medicines,” said Alis Moreno, 67, as he protested with other retirees outside the labor ministry.

Moreno sells candies in the Caracas subway to make ends meet, earning between $2.50 and $5 per day.

“I felt middle class, now I ask for alms to survive.”

(Report by Mayela Armas in Caracas, Mariela Nava in Maracaibo and Anggy Polanco in San Cristobal; Writing by Brendan O’Boyle; Edited by Vivian Sequera and Aurora Ellis)

Economy

US Business Activity Softens as Inflation Tempers Demand

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(Bloomberg) — US business activity settled back to a four-month low in early May as costs ballooned and high selling prices tempered demand at service providers. 

The S&P Global (NYSE:SPGI) flash May composite purchasing managers index slipped 2.2 points to 53.8, the group reported Tuesday. Readings above 50 indicate growth. A measure of input prices edged up to the highest in data back to 2009, while output price growth slowed from the record pace seen in April.

The group’s gauge of new business at service providers fell to the lowest level since August 2020, indicating some customers are beginning to balk at higher prices. But costs continue to balloon for businesses amid rising wages, interest rates, fuel costs and material prices.

“Companies report that demand is coming under pressure from concerns over the cost of living, higher interest rates and a broader economic slowdown,” said Chris Williamson, chief business economist at S&P Global Market Intelligence.

In the euro area, services expanded at a solid pace and manufacturing growth slowed for a fourth straight month. While services activity was buoyed by tourism and recreation, factories were hampered by supply problems related to Russia’s invasion and Covid lockdowns in China.

While at a still-robust 57.5, the S&P Global index of US manufacturing settled back to a three-month low in May. The new orders gauge eased, and production growth cooled.

Order backlogs mounted amid persistent logistics challenges, and manufacturer output prices grew at the third-fastest pace in data back to 2007, though improved somewhat from April.

Meantime, a measure of factory hiring improved to the highest level since July.

“Manufacturers in particular also report that capacity continues to be constrained by supply shortages, though these bottlenecks showed further encouraging signs of easing,” Williamson said.

(Adds graphic)

©2022 Bloomberg L.P.

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Exclusive-Sri Lanka’s prime minister says will slash expenditure in new budget

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© Reuters. People wait in a line to buy domestic gas tanks near a distributor, amid the country’s economic crisis, in Colombo, Sri Lanka, May 24, 2022. REUTERS/Dinuka Liyanawatte

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COLOMBO (Reuters) – Sri Lanka’s new Prime Minister Ranil Wickremesinghe said on Tuesday he will present an interim budget within six weeks, slashing down on infrastructure projects and re-routing funds into a two-year relief programme for the crisis-hit island nation.

“With the interim budget, it is just about cutting down expenditure, cutting to the bone where possible and transferring it to welfare,” Wickremesinghe, who took office two weeks ago, said in an interview.

Inflation in the country of 22 million people, which is being battered by its worst economic crisis since independence, could rise above and annual 40% as the government rolls back fuel subsidies and prints more money to keep the economy afloat, he said.

“We have no rupee revenue, and now we have to print another (one) trillion rupees,” he said.

Wickremesinghe added the country would appoint a new finance minister on Wednesday, who will lead negotiations with the International Monetary Fund for a loan package.

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Economy

U.S. new home sales hit two-year low; prices surge

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© Reuters. FILE PHOTO: A home under construction stands behind a “sold” sign in a new development in York County, South Carolina, U.S., February 29, 2020. REUTERS/Lucas Jackson

By Lucia Mutikani

WASHINGTON (Reuters) – Sales of new U.S. single-family homes tumbled to a two-year low in April likely as higher mortgage rates and soaring prices squeezed first-time buyers and those in search of entry-level properties out of the housing market.

New home sales plunged 16.6% to a seasonally adjusted annual rate of 591,000 units last month, the lowest level since April 2020, the Commerce Department said on Tuesday. March’s sales pace was revised down to 709,000 units from the previously reported 763,000 units.

Sales have now declined for four straight months. New home sales dropped 5.9% in the Northeast and tumbled 15.1% in the Midwest. They plummeted 19.8% in the densely populated South and decreased 13.8% in the Midwest.

Economists polled by Reuters had forecast new home sales, which account for a small share of U.S. home sales, would fall to a rate of 750,000 units. Sales dropped 26.9% on a year-on-year basis in April. They peaked at a rate of 993,000 units in January 2021, which was the highest level since the end of 2006.

Graphic: New home sales – https://graphics.reuters.com/USA-STOCKS/xmvjoxblgpr/nhs.png 24ff62ed-9a34-4609-9aed-66836e66320f1

The housing market is the segment of the economy most sensitive to interest rates, and new home sales are a leading indicator for the sector as they are counted at the signing of a contract.

The 30-year fixed-rate mortgage jumped above 5% in April for the first time since February 2011, according to data from mortgage finance agency Freddie Mac (OTC:FMCC). It has surged, averaging 5.25% in the week ending May 19, as the Federal Reserve raises interest rates to cool domestic demand and lower high inflation.

Data last week showed sales of previously owned homes dropped to a two-year low in April, while single-family building permits were the lowest since last October. Single-family homebuilder confidence was near a two-year low in May.

Despite signs that demand for housing is slowing, a record shortage of homes will likely limit the decline in sales. The moderation in sales gains could allow supply to increase and slow double-digit price growth.

The median new house price in April soared 19.6% from a year ago to $450,600. Nearly all the houses sold last month were above the $200,000 price level. There were 444,000 new homes on the market at the end of April, up from 410,000 units in March. Houses under construction made up roughly 65% of the inventory, with homes yet to be built accounting for about 27%.

The backlog of homes approved for construction but yet to be started is at an all-time high as builders struggle with shortages and higher prices for inputs like lumber for framing, as well as cabinets, garage doors, countertops and appliances.

At April’s sales pace it would take 9.0 months to clear the supply of houses on the market, up from 6.9 months in March.

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