Poverty levels in Argentina spiked as inflation soaring above 124 percent undermines household purchasing power, fuelling despair ahead of a heated October election.
About 40.1 percent of Argentines were living in poverty in the first half of the year, up from the previous level of 39.2 percent, according to government data published Wednesday. It’s below the peak seen during the pandemic but a clear sign that inflation is devastating Argentina’s society and economy, which is careening toward its sixth recession in a decade.
Surging consumer price increases are the dominant factor behind the country’s ballooning poverty rate. Wages for informal workers, who tend be poorer than salaried payroll employees, were up 82 percent by June while inflation accelerated past 115 percent, meaning they lost significant buying power. Following an 18 percent devaluation of the peso in mid-August, prices for staple foods like milk and flour posted 17 percent increases in August.
When a church in an impoverished community in Buenos Aires recently distributed donated beef to about 40 families, the reaction among those who missed out was “virulent,” priest Pedro Baya Casal recalled.
“The level of despair for a piece of meat enough for a single day’s stew was painful. You make a donation, hoping it will bring some joy and it ends up being a tragedy,” he said.
The majority of families Baya Casal serves plan to vote for libertarian outsider Javier Milei, who proposes disruptive ideas like dollarising the economy and closing down the Central Bank to squash inflation. Milei came in first in an August primary vote, with around 30 percent of votes.
Economy Minister Sergio Massa, who is also running for president and came in third in the August vote with 27 percent, is pulling out the stops to alleviate the costs of inflation for the poor. Massa announced Tuesday that millions of informal workers would get US$268 in welfare checks in the next two months, after recently scrapping income taxes for all but the top one percent of earners.
With net reserves deep in the red, the country is reverting to printing money to finance spending, which could well exacerbate inflation. Argentina’s worsening economic crisis poses a major challenge for the next government and its ability to pass the austerity measures needed to address the fiscal deficit, a condition of the International Monetary Fund’s US$44-billion programme that refinances payments Argentina owes the institution from a previous bailout.
Argentina’s economy suffered the worst quarter since the peak of the pandemic between April and June, with a 4.9 percent annual contraction. Economists forecast that Argentina’s economy will shrink three percent this year.
Argentines will vote in a general election October 22. If no one candidate scores more than 45 percent of votes, or 40 percent with a 10 percentage-point lead, a run-off vote will take place November 19.
by Manuela Tobias, Bloomberg