By Dan Molinski
Of DOW JONES NEWSWIRES

CARACAS (Dow Jones)--Venezuelan President Hugo Chavez responded Sunday to what could become an out-of-control inflation problem, promising swift action that will include unleashing the military to nail merchants who unfairly raise prices.

Chavez said that in many of the cases, it's not just greed but politics that are leading merchants to raise prices. With key congressional elections just four months away, he said, businesses loyal to the opposition are hoarding goods so prices will rise, in the hopes of stirring panic and pulling voters away from the ruling socialist party.

"There's a highly speculative component, but also a political angle," Chavez said in a statement, adding that the high inflation rate "doesn't follow the so-called logic of the economic system."

The statement from the president's office said Chavez has been in high-level meetings with his economic team all weekend to address the problem, after consumer-prices data Friday showed a shocking 5.2% climb in April. The rate was the highest monthly jump in years, and brings 12-month inflation to 30%, the highest in the region.

Specific short- and medium-term measures to tackle the problem will be announced in the coming days, the statement said. In the meantime, it said, Chavez has told "civilian and military intelligence and all state entities" to be on the lookout for speculative merchants, hoarders and other law breakers.

Even before Friday's inflation data, the government has been trying to combat speculative merchants. Nearly 50 butchers were arrested and jailed in recent weeks for allegedly charging more for their cuts of beef than the government allows. The butchers claim the prices they pay for sides of beef have shot up, forcing them to pass on those costs to the customer.

Critics say Venezuela's inflation problem, which has been a thorn in Chavez's side throughout much of his 11 years in power, is a result of the socialist economic system his government has been setting up.

The government has nationalized scores of private companies, and sometimes entire industries, bringing more and more workers onto the government payroll. In doing so, productivity rates have declined sharply, and shortages of many foods, including milk, bread and sugar, are common.

Importers are also finding it difficult to get products to market because the government's tightly controlled foreign currency system makes it hard for them to access the dollars needed to buy products abroad.

With a lack of dollars, the local bolivar currency is sinking, hitting another record low of 8.05 bolivars for $1 on Friday, down 26% from where it began the year.

The resulting scarcity of products, the opposition says, is creating a speculative environment in which business owners have no choice but to increase prices.

Skyrocketing inflation comes as the oil-driven economy declined 3.3% last year due to a drop in crude prices. It's expected to shrink again in 2010, partly due to shortages of electricity and water. This has created the classic stagflation scenario of stagnant growth and soaring prices.

Despite all that, Chavez said, he won't be deterred from his push toward a socialist society, and will nationalize any companies that aren't following price regulations.

"I've given instructions that they bring me proof of the hoarders and we will apply to them the Constitution and the law," he said. "I have no problem doing this. On the contrary, they are doing me the favor of helping me advance in the direction established: socialism."

-By Dan Molinski, Dow Jones Newswires; 58-414-120-5738; [email protected]