WINCHE, Venezuela — President Hugo Chavez's government is likely to spend heavily this year to rev up the economy during his re-election bid, and that could worsen one of Venezuela's biggest problems: 27-percent annual inflation that is already close to the highest in the world.
Chavez has started ramping up spending ahead of the October vote, and economists warn that more money injected into the economy will jolt prices. The government predicts 22 percent inflation in 2012, but the investment bank Barclays Capital projects that it could top 36 percent.
The incomes of the poor are being squeezed in places such as Winche, a hillside community on the outskirts of Caracas where children play on dirt roads lined with shacks made of wood and corrugated zinc. Some residents say they're being forced to spend more of their paychecks on groceries because of soaring food prices.
"I buy what's most necessary, which is food, and I don't buy other things, you know, like clothes," said Nebis Berrios, a 55-year-old woman who says her husband's modest pay does not go as far as before. "As far as the money goes, we buy food. And if not, that's as far as we get."
The oil-exporting country has had the highest inflation in the Americas for six years running. No other country is even close, according to the U.N. Economic Commission for Latin America. Suriname is officially No. 2 at 15.8 percent as of October, though economists says Argentina's real rate may be at least double the latest government figure of 8.6 percent.
Venezuela had the second-highest official inflation rate in the world as of November, surpassed only by Ethiopia's 31.5 percent.
The Venezuelan government's increasing economic controls, heavy reliance on imports and inadequate domestic production of food and other items have contributed to the problem.
Chavez's attempts to control inflation through price controls have added to other complications, such as sporadic shortages of sugar, cooking oil and milk.
Higher oil prices during the past year have allowed Chavez to pour more petrodollars into populist programs, such as a newly created cash benefit for poor families of $100 a month for each child.
Chavez is also investing billions of dollars in public housing projects, railways, subway expansions, and a new cable car system in Caracas' hillside slums.
Government spending in November was already 73 percent higher than in the same month a year earlier in nominal terms, according to Central Bank figures.
Venezuelan economist Asdrubal Oliveros recently predicted that government spending could increase 20 percent in real terms this year as compared to 2011.