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The Venezuelan government will cut prices on a slate of basic goods up to an average of 25% as part of a long-awaited first wave of broadly expanded price controls that officials say will combat the country's soaring inflation, Vice President Elias Jaua announced Monday.

"We have not messed with profit margins," Jaua said during a televised rally. "We have only taken out the costs that should not be included in a cost structure."

Among the adjustments, the price of bleach and dishwashing liquid will fall 6%, toilet paper and tooth paste, 11%, and shampoo and detergent, 25%. In all, the government has established new price ceilings for sale to the public of 19 products, mostly household cleaning and personal hygiene items. Jaua said President Hugo Chavez, who left for Cuba last week for surgery to remove a possibly cancerous growth, approved the list from abroad. The new prices will go into effect April 1, allowing a chance for appeals, though Chavez has threatened to seize the assets of any company that resists the changes.

"We have been ... generous [with companies]," Jaua said. There is no word yet on the future release of further price caps, which officials have promised will touch virtually every sector of the economy.

Chavez signed the Law of Just Costs and Prices in July and originally promised to unveil the first new set of price limits by December. The announcement has been delayed for several months, unsettling Venezuelan retailers and producers who have long complained existing price controls have forced them to operate at a loss and have contributed to economic imbalances. According to local analysts, many businesses leaders have cut back on inventory and resisted increasing production while waiting to assess the measure's impact.

As part of the new law, officials created a national agency, known as Sundecop, to dive into the books of an estimated 16,000 firms in Venezuela and examine cost structures to determine the "just" level of profit the companies should be collecting on their products.

Companies that faced audits in connection with the first installment of revised prices include local units of multinationals like Colgate-Palmolive Co. (CL), PepsiCo Inc. (PEP), H.J. Heinz Co. (HNZ), Johnson & Johnson (JNJ), Unilever PLC (UN, UL) and Nestle (NSRGY, NESN.VX), as well as local food distributor and packager Alimentos Polar.

Chavez has said the additional, far-reaching restrictions were needed to combat price-gouging and product-hoarding in the private sector, which he blames for Venezuela's notoriously high inflation. During the 12-month period ending in January, consumer prices in Venezuela rose 26%, the highest rate in Latin American but down from the 27.6% posted in December. The slower pace of inflation was partially due to the price freeze imposed on the 19 products since November pending the new price caps.

Critics of the new law, however, say it will ultimately backfire and lead to greater shortages of goods while driving inflation. "Inflation is not controlled with price controls but by encouraging production," said Carlos Larrazabal, head of Venezuela's largest industry association, Conindustria. "There are some large reductions [in the new price caps]. This will have a negative impact on productivity."

-By Ezequiel Minaya, Dow Jones Newswires; 58-414-120-5738; ezequiel.minaya@dowjones.com

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