gouchobob
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Conorworld said:Well I think that a bit of the bite of the inflation is counteracted by increased public spending, wages etc that are built on the commodity boom. I could be wrong but IF the price of commodities that Argentina exports were to drop, things could get nasty and the wheels on the truck could fall off.
I am just surprised at how there isn't a bigger backlash in Argentina against the rapid increase in inflation.
I always found those lists of most expensive cities in the world fascinating. A lot of the cities mentioned in MorganF's quote are developing countries with large commodity booms such as oil. I was reading an interesting article on Luanda in Angola where the price of a hotel room averages about $500. The things they use to examine the level of prices are uniform for all cities-hotel rooms, price of coffee, rent etc. In the instance of Luanda, it fails to take in that the country is still recovering from a horrific civil war and then suddenly found itself in the midst of a commodity boom. There are not enough hotels etc for the workers, analysts and so forth in the city and the basic rules of demand and supply push the price up. BA seems to have completely different fundamentals.
The inflation in Argentina is the result of the government's headlong pursuit of growth at any cost, massive increases in government spending (and money supply) underpinned by the commodity boom. The commodity boom in turn is driven by demand from China. Two-thirds of the Chinese economy is driven by construction, which requires the importation of all manner of raw materials to fuel. Some believe that the real estate boom in China is a bubble of massive proportions and if it pops the commodity boom will be over. If this happens the countries that supply China with raw materials(Argentina being one) will be hit very hard by a drop in prices and demand. The most recent reports out of China on real estate could be cause for alarm.
http://www.theatlantic.com/business/archive/2011/04/is-chinas-real-estate-bubble-popping/237344/