It’s only a four-hour flight from Quito, the capital of Ecuador, to Caracas, the capital of Venezuela. Both countries lie at the northern end of the South American continent. In economic terms though, they are poles apart.

Venezuela is broken. Gross Domestic Product has collapsed over the past five years. The International Monetary Fund (IMF) predict that GDP will contract another 15% this year, making a cumulative 50% decline since 2013. The IMF also predict that the annual rate of increase in consumer prices will reach 13,000% in 2018. What is commonly known as hyper-inflation has been raging in Venezuela, making life miserable for its population. 13,000% sounds incredible, but consider this – at its peak in 2009, the annual increase in consumer prices in Zimbabwe reached an estimated 500 billion percent! At that point, society ceases to function, but the land doesn’t disappear. Zimbabwe is still a country in southern Africa and, no doubt, the land mass known as Venezuela will continue to exist in the future. But it’s a living nightmare for its population right now with food and medicine shortages bringing on a humanitarian disaster. The government has defaulted on its debt which may be the first sign that the end-game is in sight.

Whilst hyper-inflation reins in the north-east corner of South America, in the north-west corner, Ecuador could be facing the opposite issue. For the first time in 47 years, as our chart below shows, consumer prices in Ecuador have actually fallen on an annualized basis. Although consumer prices go up and down for many reasons, it is interesting to note that Ecuador is experiencing some deflation in the true sense of the word. Its monetary base – notes and coins in circulation plus minimum reserves that institutions hold with the central bank – is lower now than it was at the end of 2016. In that sense, we can say that Ecuador is deflating. The interesting question will be whether a deflationary mindset dominates in Ecuador, the way an inflationary mindset dominates in Venezuela. You can be sure that we will be following events closely here at deflation.com.

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