Argentina’s volatile inflation and its present situation

By Tracey Chandler

Argentine Peso, By cnbc.comIn February 2014, the Argentine peso suffered from a sudden and sharp decrease which gave way to a huge increase in the value of the US dollar — in just two days it rose 17 percent against the peso.

Sadly, the situation doesn’t present anything new in Argentina. The country has long since suffered from an unstable economy and inflation rates which rocket sky high with little notice.

However, recent events have been some of the worst ever recorded in the history of Cristina Fernández de Kirchner’s government — an annual increase of 32.1 percent in February 2014, and a annual increase of 32.9 percent by April of the same year. Life becomes difficult because products and services within the country tend to rise disproportionately to the rate at which the average wage increases.

For example, food and drink went up by 4 percent, which greatly affects the poorest residents because they form the demographic’s largest monthly expenses. Imported equipment and household maintenance services rose by 4.8 percent, medical attention and other health-related services and products escalated another 6 percent, and transport costs increased by 3.9 percent owing the rise in petrol costs amongst other things.

Inflation in Argentina has a history of hitting the poorer communities the most and makes day to day life very difficult, without warning or reprieve. Holiday time or travel of any kind is made immediately difficult, particularly outside of the country, because the Argentine peso is worth so very little against hard world currencies including the US dollar, the Euro, and the UK pound. Anyone who booked a holiday abroad at the beginning of the year will now be dealing with the worry of how to actually make their money stretch to cover accommodation and personal expenses when away.

 

The question is, what is the Argentine government doing to try to control inflation and to improve the quality of life across the country?

One of the measures adopted by the Argentine government is called “Precios Cuidados” — literally translating to Looked After Prices. The government has used this initiative more than once in the past, whereby it ensures that the prices of certain supermarket products are frozen and don’t go up reflecting inflation as the other “non-staple diet” products do.

Precios Cuidados was an agreement signed by Argentina’s Chamber of Supermarkets (CAS), and the Argentina Supermarkets and Autoservices Federation (FASA). It’s an initiative which has frozen around 80 staple products available in large chain stores across the country. However, the help that this initiative provides can only go so far.

The government has also opened a series of channels to directly empower Argentine citizens with the means and know-how of denouncing those supermarkets who do not comply with the “pricing freeze” as outlined by the State. In this way, local Argentine communities can take matters into their own hands and see that all laws pertaining to the problems with inflation are adhered to.

There are two free mobile phone applications which can be downloaded to help verify whether or not the prices being charged in local supermarkets are in accordance with those outlined by the government. Naturally, this is all well and good, but if you factor into the poorest demographic within the country you might not have the kind of mobile phone required to get access to this kind of information.

Fenández de Kirchner’s government has also proposed, during the last few months, that there be a reduction in electricity and gas costs, and fixed-line telephone accounts, and that 0 percent VAT be charged to the disposal of fruit and vegetable products. Hopefully, these measures will make a visible difference to the lives of many Argentines, particularly those in the poorest demographic.

 

Then there’s of course the famous blue dollar to contend with. Argentina has an official dollar exchange with, but it also has what it refers to as the blue dollar — supposedly the idea of having a blue market is not looked upon so badly as a black market, but it’s exactly the same thing. The official dollar exchange rate and the unofficial blue dollar, happily co-exist side by side in Argentina. The rates are unashamedly broadcasted via national television, as though both rates were legal.
Until the Argentine government manages to find a way of diminishing the advantages of operating on the blue market, Argentines and international visitors, who can take advantage of amazing exchange rates for their hard currency whilst visiting the country, will continue with their “unofficial” business which contributes to the country’s debt and unstable economic future.

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