Sunday, March 3, 2024

OP-ED | 12-01-2024 15:24

Prices out of the market

President Milei wants to avoid the failures of Mauricio Macri’s gradualism but the shock approach might have too short a fuse.

The terrifying figure of 25.5 percent for last month’s inflation announced by the INDEC national statistics bureau on Thursday afternoon closes that book of horrors for the year 2023 with an annual figure of 211.4 percent – the key question for this new year is whether this inflation will continue to spiral beyond a hot summer with all the fury of some recent storms or whether 2024 remains an open book.

The blame game for inflation on this scale is inevitable but also futile. That last month’s figure (by far the worst since the tail end of the 1989 hyperinflation in early 1991) is the direct consequence of the shock policies of the new libertarian Javier Milei Presidency is undeniable but it would be equally impossible to argue that the government during 49 of its 52 weeks has zero responsibility for the inflation of any year. So many lids had been placed on so many pressure cookers until election day in former economy minister Sergio Massa’s frantic bid to stay in power that it is difficult to imagine December inflation as less than 20 percent even if he had won (short of businesses agreeing to freeze prices for a further four years to ensure his re-election) yet Milei’s reckless gamble has accelerated the pace beyond most people’s worst fears.

But in Harry S. Truman’s phrase, the buck stops with Milei (in more than one sense with his big campaign hit of dollarisation increasingly stillborn) and no point in dwelling on the past or might-have-been hypothesising about the present – the issue is whether his policies serve the nation or even his own interest. Will this new year bring an evolution towards a more normal future or the extinction of the middle class? The shattered purchasing-power of wages and pensions points to the latter with the political sustainability of libertarian remedies in doubt, no matter how valid they might be – the most recent opinion polls indicate the 55-plus percent of Milei’s run-off triumph sustained into this year by Christmas bonuses now already receding towards his hard core of 30 percent in both PASO primary and first-round voting as runaway inflation might well be seeing the percentage of those below the poverty line reaching that same once magic number of 55. Milei wants to avoid the failures of Mauricio Macri’s gradualism but the shock approach might have too short a fuse.

We could list the varied but usually monstrous percentages of price increases contained in the INDEC data and government announcements but the simplest way of summarising them would be as out of the market – and therein lies perhaps the only hope of success, in returning them to the market. Orthodox economists (as well as Economy Minister Luis Caputo) almost invariably offer the linear monetarist argument of the fiscal deficit as a single-factor explanation of decades of Argentine inflation, which conveniently limits blame to the state, but the private sector operating in one of the world’s most protected markets became accustomed to charging almost any price they liked in the confidence that the money to sustain those prices would be printed sooner or later. It is not that Argentine businessmen are uniquely greedier than elsewhere, as Kirchnerites like to argue, but they were simply offered more scope (especially by Kirchnerism). Nor is greed the only factor – the ludicrously hiked prices often stem from panic or confusion with relative prices in total disarray.  

If Milei means business about “no money,” this extreme price flexibility beyond elasticity should run its course with businesses no longer able to price themselves out of a depressed market – beef prices (8,000 pesos per kilo one week, 5,000 another) have already been a case in point. Yet “no money” comes accompanied with “not funny,” as in the old joke – a savage recession also of dubious social sustainability would be the mechanism slaying the inflationary dragon.

A red-hot hyperinflationary 2024 or an economic winter? This year is still too young not to be an open book. We do not even have any certainty regarding a macro-economic indicator even more basic than inflation, namely growth – there are conflicting estimates with some forecasts of positive growth even in the midst of crisis (mostly due to the huge difference between last year’s drought and a potential bumper harvest) while others predict a record plunge with decades of deadwood eradicated as in some city parks. Milei might echo Mark Twain in saying: “Cheer up, the worst is yet to come” but the year remains an open book.


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