The central problem of the Argentine economy: inflation

The central problem of the Argentine economy: inflation

Inflation is the exclusive responsibility of economic policy, not private sector agents, but its endorsement throughout Argentine economic history is striking.

The 2021 National Budget has established a target of variation of the CPI of 29% per year. INDEC reported inflation for the first quarter that accumulates 13% annually, and that goal has been exceeded. The REM of the BCRA REM yields an average annual estimate of 43.5%.

It is very difficult to end high inflation when it also acquires an inertial, and perhaps, cultural character. Between 2018 and 2020 it has averaged 45.8% annually, leaving an inertia difficult to cut. Why? Probably, many Argentine governments consider inflation something positive.

It allows financing more public spending, generating more public employment, enhancing the economic cycle and dreaming of eternalizing the political cycle. In addition, inflation liquefies the transparency of the numbers of the national budget and of the provincial and municipal budgets, raising questions about transparency, and the underestimation of inflation in a budget allows obtaining higher collection than budgeted, opening more discretion in the allocation of spending.

Part of the population perhaps “enjoys” the greater liquidity derived from inflation and an economy that is increasingly informal.

Wages and incomes (and social plans and pensions) are indexed in part to past inflation, and although purchasing power has been deteriorating in recent years, it does not seem to be a matter of debate in the joint, where unions acquire a more important role, due to inflation. Travel abroad increases as the peso appreciates (exchange lag), which will be more inflation in the future. Thus, inflation allows us to travel the world – today not so much because of the pandemic, of course.

If high inflation in Argentina has a cultural component, the problem is serious. And you don’t fight with price controls, as shown by the results between 2010 and 2015, with 27% annual inflation.

Inflation is exclusively the responsibility of economic policy, not of private sector agents, but its endorsement throughout Argentine economic history is striking. The exit from stagflation is usually possible with regime changes and an economic shock. The same, to change the inflationary inertia.

Melissa Galbraith
Melissa Galbraith is the World News reporter for Globe Live Media. She covers all the major events happening around the World. From Europe to Americas, from Asia to Antarctica, Melissa covers it all. Never miss another Major World Event by bookmarking her author page right here.