UPDATE 2-Venezuela takes reality check, ups inflation target

Tue Apr 8, 2008 7:46pm BST

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CARACAS, April 8 (Reuters) - Venezuela raised its annual inflation target to 19.5 percent on Tuesday, the latest sign the government has taken a dose of reality in its fight to contain Latin America's fastest consumer price rises.

Planning Minister Haiman El Troudi raised the target from an earlier goal of 11 percent after revealing that Venezuelan prices rose more than 7 percent in the first three months of the year.

"The levels of inflation are not what we were aspiring to," El Troudi told reporters.

Last year, oil-flush Venezuela refused to raise its inflation goal above 12 percent, even as prices surged by 22.5 percent, driven by high government spending in the midst of a fast growing economy.

President Hugo Chavez has spent record income from high oil prices on subsidized food programs and infrastructure projects, injecting money into the economy and feeding a major consumption boom while spurring consumer prices.

Stung by defeat in a referendum on socialist reforms in December, Chavez reshuffled his economic team to cool economic problems.

His new finance minister Rafael Isea has attacked the exchange rate, dragging a parallel rate for the bolivar currency closer to a fixed rate of 2.15 to the dollar, a strategy some analysts believe may precede a devaluation.

The government has sold hundreds of millions of dollars of debt this year to soak up excess liquidity stemming from government largess financed by windfall oil revenues.

That has helped bring down monthly inflation from more than 3 percent in January to 1.7 percent in March. The government says preliminary figures show economic growth of between 6 and 7 percent in the first three months of the year. (Reporting by Deisy Buitrago and Frank Jack Daniel; Editing by Tom Hals)