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Argentina Struggles with Soaring Inflation

As surging inflation takes a toll on Argentine consumers, the Argentine government affirmed on Tuesday that it would levy fines against supermarkets who fail to respect voluntary price controls that many stores and wholesalers agreed to in December.

On Tuesday, Chief of Cabinet Jorge Capitanich said that the details of the new sanctions would be made public by the Secretary of Commerce this week. Meanwhile, he encouraged Argentines to act “rationally and effectively” and to not purchase overpriced items that would validate “product price increases due to speculation from industrialists, traders and entrepreneurs."

Initiatives to freeze the costs of common goods at supermarkets, accompanied by ongoing criticism of business owners and banks, have increased as the Argentine government tries to confront rising inflation. The government has also encouraged citizens to report overpriced items to officials by using a free app for smartphones called “Precios OK” (Okay Prices).

Despite the measures, however, analysts have questioned whether attempts to tackle inflation without implementing tighter fiscal and monetary policies will be sufficient. “If the government decides to maintain the interest rate below the rates of inflation and devaluation, mechanisms will arise that increase the demand for dollars,” read a report published in late January by the Instituto Argentino de Analisis Fiscal (Argentine Institute of Fiscal Analysis—IARAF).

A steep currency devaluation during the week of January 19 helped the Argentine Central Bank stabilize the peso and stem the depletion of foreign currency reserves, which have been used to finance debts and pay for imports. As a consequence, inflation has accelerated quickly and consumer confidence has plummeted.

According to abeceb.com, an economic consultancy, prices rose by more than 4.8 percent last month and could be on track to climb by thirty percent over the year. The price of beef, including milanesas, breaded cutlets that are a staple of the Argentine diet, increased by 8 to 20 percent, while Shell and state-owned YPF raised gas prices by 6 percent around the country. Refrigerators built with imported components received new price tags overnight.

After yearlong complaints directed at Argentina by the International Monetary Fund (IMF), the government now appears set to acknowledge a sharper inflation rate than it has previously.   In 2013, officials reported a 10.9 percent inflation rate, which was less than half of the figure given by private analysts. Argentina’s Instituto Nacional de Estadística y Censos (National Statistic and Census Institute—INDEC) is expected to release an updated inflation index later today.

But while the latest move signals a change, Gastón Rossi, an economist at LCG consulting, told Americas Quarterly that even if the new price index makes sense in theory, it will still underestimate inflation by measuring nationwide prices instead of prices strictly within the metropolitan area of Buenos Aires, where increases have been the greatest.

“It is a sign of good intention, but not much more than that,” Rossi said.

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Natalie Schachar is a freelance writer living in Buenos Aires.

 



Any opinions expressed in this piece do not necessarily reflect those of Americas Quarterly or its publishers.
Tags: Argentina, Price Controls, Argentine economy

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