Analysis: “Punk Nation”: Inflation in Argentina Soars as Foggy Future Drives Prices Rise

Argentine President Alberto Fernandez, put on the spot to explain a damaging and stubborn inflation rate that soars to 50%, was inspired by the punk rock musical genre of Patti Smith and the Ramones.

“Argentina is a punk nation,” said the center-left president, who plays guitar and named his dog Bob Dylan, in reference to the rebellious spirit of the music movement born in the 1970s. .

“Everything is today, there is no tomorrow. Everything is short term because there is no future.”

The South American nation, he explained, had, over the years, built a national psyche so steeped in inflation that it had become a self-perpetuating vicious cycle. “People are raising prices just in case,” he said.

The lyrical response underlines a concrete and major stake for its Peronist government, which was targeting inflation below 30% this year but was surprised by the soaring prices which undermine savings, wages and the purchasing power of consumers. .

Bringing inflation under control is key to restoring economic stability after three years of recession, avoiding social upheaval as poverty levels rise and for the Peronist government to avoid a painful defeat in the midterm elections at the end of the year.

Argentines, however, assumed for decades that high inflation would devalue any savings and turned to safe-haven dollars, a trend economists, investors and officials have struggled to explain – or resolve. Even local schoolchildren learn to watch the inflation rate.

Other countries in the region have seen prices start to climb this year, but nothing like Argentina. Brazilian 12-month inflation made headlines in April, topping 6%. Argentina’s was most recently recorded at 46.3%.

“We’re always running against the clock. I don’t know how much it’s going to cost me to replace what I’m selling and that’s why we’re in a vicious cycle that hurts everyone”, José Guglieo, a 50-year-old businessman. in the capital Buenos Aires, told Reuters.

This pain is made worse by a strong second wave of COVID-19 cases which has pushed the country above hard-hit Brazil in terms of confirmed cases per capita and forcing the government to toughen lockdown measures.

“The coronavirus also hurts us. There are fewer sales because there are fewer people around,” Guglieo added.

“INFLATIONARY INERTIA”

Analysts told Reuters the main factors affecting inflation were monetary and fiscal imbalances, accentuated since last year’s pandemic, which forced the government to print more money, freeze some prices and recently stop beef exports.

Víctor Beker, an economist, said if the government did not come up with an aggressive plan to fight inflation, the situation would get worse. He said prices could increase by 60% this year.

“There is an inflationary inertia that must be overcome by attacking all causes and roots. Otherwise, inflation will stay, spilling over into future inflation,” he said.

Others were slightly more optimistic.

Matías Rajnerman, chief economist at Ecolatina, predicted inflation of 45% for the year, although he said 20% inflation in the first five months of the year had “broken” l official target of 29% and meant any slowdown from 2020 was impossible. .

Business owners have said rising prices are usually a matter of survival, especially in times of economic crisis.

Diego Riveros, 43, owner of a pasta store in Buenos Aires’ Flores neighborhood, told Reuters the problem was that entrepreneurs stood to lose if they didn’t raise prices.

“We are always behind on the prices, which we change every 4 to 5 months, and in that time lag you lose your margin,” he said.

“It makes it difficult for us when it comes to setting prices and managing margins. You don’t know how much you’ll pay next week for the goods: flour, oil, dairy. These are the three products that touched us the most, ”added Riveros.

Our standards: Thomson Reuters Trust Principles.


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