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ECONOMY | 15-12-2023 14:24

Price hikes soar with a vengeance in inflation-weary Argentina

Experts warn of ‘inflationary shock’ in wake of Javier Milei’s first measures; Milei could pay the price for pushing correction onto citizens and not the “political caste,” as promised.

Citizens in Argentina are gripped by “uncertainty and concern” as prices soar in the wake of Javier Milei’s emergency measures, but on the streets many concede that drastic steps are required if the libertarian leader is to right Argentina’s economy.

The newly inaugurated Javier Milei administration this week announced an emergency economic package that aims to reduce the fiscal deficit and avoid hyperinflation, though experts say the measures will massively increase inflation in the short term. 

The evidence was clear to see on the streets of Buenos Aires this week – though prices had already jumped prior to Milei’s inauguration this Sunday, local business chambers reported that some goods had doubled following the end of the previous government’s 'Precios Ciudados' price-control scheme.

For shoppers, the impact of the measures is being immediately felt. Among other increases, basic food products are expected to increase up to 100 percent in the coming days. In supermarkets they believe that, without the trust, oil will go from costing 800 to 2,000 pesos per litre, while bakeries would register increases of around 80 percent. 

Former Agriculture secretary Juan José Bahillo forecast this week that "a kilo of roast-beef [a cheap cut normally used for stews] will cost at least 8,000 pesos" following the announcement of the economic package.

For Buenos Aires resident Paula Di Marzo, the days since the announcement have been filled with “uncertainty and concern.”

“Today I have to fill up with petrol and I will see the increase then. But petrol increases have been coming in recent weeks so I am already expecting a big hike,” she told the Times.

Di Marzo was right – fuel prices were hiked by as much as 40 percent this week in response to the new rules and regulations.

 

‘Shock therapy’ to ‘inflation shock’

The new presidential administration is pursuing a policy of economic “shock therapy” which banks on citizens accepting economic pain initially through austerity measures and a massive devaluation of the currency. 

On Tuesday, Economy Minister Luis Caputo announced that the new government would be devaluing the peso by more than 50 percent, shifting the official exchange rate from around 366 pesos to over 800 overnight. The currency reset was harsher than analysts had anticipated and includes a monthly two-percent crawling peg.

Economist Fausto Spotorno says the devaluation, “does not serve to lower inflation. In fact it makes it worse” but the government is attempting to “order the exchange market to finally unify it into a single market.” 

“The fiscal austerity measures are the ones that will finally stop inflation because they will eliminate the financing of the fiscal deficit through monetary issuance and will help to cool demand,” Spotorno told the Times

But before this can happen there will be an “inflationary flash” as “the economy will have to put in order the relative prices that are currently distorted by the regulations and price freezes implemented by the previous government to contain inflation in the short term without solving the underlying problems,” explained the analyst.

Additional measures are also being taken to cut down on the size of the federal government, including halving the number of ministries from 19 to nine, an immediate halt to new public works tenders as well as a suspension of works who have been tendered but have not yet been started, among others.

Presidential Spokesperson Manuel Adorni has also confirmed planned cuts to transport and public utility subsidies beginning on January 1, 2024. These cuts will affect the costs of electricity, gas and water. 

 

Price to pay?

Political analyst and sociologist Carlos de Angelis forecast that Milei will pay a price amongst voters for the soaring hikes, observing that he ran on a platform of punishing the “political caste” who were entrenched in power for decades and living comfortably while the general public suffered from inflation and stagnation. 

The administration, he says “is already receiving the political cost, precisely because of this difference in imagining that this price was going to be paid by the political caste” when in actuality the increases will have their strongest impact on the general population. 

Another resident, Lydia Cáceres, said while shopping for broccoli at a local shopping market that she had also seen the hikes coming. Rather than complain, however, she said it was about time.

“Nobody likes things to increase [in price], but in this case I think it is absolutely necessary,” she told the Times.

Lydia points the finger firmly at those who governed before him. “We couldn’t continue living like this,” she said.

Justin Martinez

Justin Martinez

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