Inflation Dollar Question

[Rich One]

I am an expat and I do not have a maid. I also do not earn a fortune but just so happen to earn my money in dollars. I dont think its bitching to hope that the dollar rate keeps pace with inflation this year.

Exactly no matter what your budget is if you experience a 30 % cut due to inflation it will affect your lifestyle...!

 

[Ceviche]

Exactly no matter what your budget is if you experience a 30 % cut due to inflation it will affect your lifestyle...!

Time to stop eating Fredo and having the burger in fancy burger places!

 

[mikic007]

I am an expat and I do not have a maid. I also do not earn a fortune but just so happen to earn my money in dollars. I dont think its bitching to hope that the dollar rate keeps pace with inflation this year.

It cannot, as Ries put it, not everything is tied to dollar, although much is. But if you higher also dollar (artificially as serafina wants), inflation will be even higher and you are in never-ending circle. Inflation here is in first place artificial and related to mass hysteria, not that much to economical situation and overprinting pesos.

 

[Ries]

There are lots of things that are going to go up in cost regardless of what the dollar does.

this article about wine at the bubble is interesting- For the last few years, wine producers in Argentina have been losing money due to the Cepo. Now that they can get more pesos back for every dollar worth of wine they sell on the international market, they will be making more money- but they will still, most likely, raise prices to make up for the years they lost money.
http://www.bubblear.com/government-to-give-wine-industry-a-hand/

however, if export restrictions loosen (which they havent, yet) and export taxes go down, (which has begun) then wine makers will want to sell more overseas. They can make much more money that way.
Which may mean less wine being sold here, domestically, and higher prices here, domestically, both due to scarcity and due to the winemakers wanting to make the same amount on every bottle, not have two prices, one Argentina, one Global.

if Macri really loosens import and export rules and friction, many things may go up in price domestically, even if the peso went UP against the dollar.

 

[Girino]

It cannot, as Ries put it, not everything is tied to dollar, although much is. But if you higher also dollar (artificially as serafina wants), inflation will be even higher and you are in never-ending circle. Inflation here is in first place artificial and related to mass hysteria, not that much to economical situation and overprinting pesos.

I think you misunderstood me. I think the current rate is artificially low. Life in Argentina cannot be more expensive than in Europe or in the States, given the lower offering of Argentina (in terms of food, safety, welfare, etc.)

 

[estebandepraga]

I live six months here and six months in Europe(Prague, the most magical and beautiful, albeit tourist-filled city on the continent). When one is gone for a lengthly stay, just as when one doesn't see a little child on a daily basis, the differences, when there are differences, can easily be noticed and compared. In the 6 months I was away, so many items and services have gone up not 25,30,35 etc percent but over 100%! I compare prices of the same items in major shops in Prague and here and see that here they prices are often 200% more, and I am not talking about imported goods! For me the only thing which has remained "cheap" is public transport in the city of BA and some wines.Period! In Prague, one can have a great luncheon special meal,"denni nadibka or menu ejecutivo" for 50 pesos with soup near my house..and I live in the city. In the true tourist areas, that may reach 100pesos. And here? While property may be less expensive than in many major European cities, one can also get finanzing there; here, dream on!
The USD is artificially low in my eyes and will rise against the peso but by already having an almost 40% devaluation of the currency recently, Macri must tread carefully on deep waters which he is.
All I want is a safe and more equal Argentina for us all, natives and foreigners alike. Que Dios me oiga!

 

[Nitale]

There are lots of things that are going to go up in cost regardless of what the dollar does.

this article about wine at the bubble is interesting- For the last few years, wine producers in Argentina have been losing money due to the Cepo. Now that they can get more pesos back for every dollar worth of wine they sell on the international market, they will be making more money- but they will still, most likely, raise prices to make up for the years they lost money.
http://www.bubblear....ndustry-a-hand/

however, if export restrictions loosen (which they havent, yet) and export taxes go down, (which has begun) then wine makers will want to sell more overseas. They can make much more money that way.
Which may mean less wine being sold here, domestically, and higher prices here, domestically, both due to scarcity and due to the winemakers wanting to make the same amount on every bottle, not have two prices, one Argentina, one Global.

if Macri really loosens import and export rules and friction, many things may go up in price domestically, even if the peso went UP against the dollar.

We can make wrong assumptions about almost anything in life, but most probable about this country's politics and economy.

 

[Ries]

I think you misunderstood me. I think the current rate is artificially low. Life in Argentina cannot be more expensive than in Europe or in the States, given the lower offering of Argentina (in terms of food, safety, welfare, etc.)

Of course life in Argentina CAN be more expensive than in Europe or the states.
It has been, in the past. There were times when argentina, and buenos aires in particular, was MORE expensive than Paris.

The economy here is very complicated.
There are hundreds of rules, regulations, laws, and habitual ways of doing things that are not changed by dropping the CEPO.

There is no global rule that says you must get paid a certain amount, that you are guaranteed a certain level of safety, or quality of food.

Moscow these days is quite dangerous- people are machine-gunned on the streets. (well, some people- mostly journalists, gangsters, and olgiarchs who have fallen out of favor). And social services there are pretty terrible.
Yet the prices there are insane.
Luanda Angola is quite simply in another category from Argentina, in terms of crime, quality of life, etc- and yet it is also incredibly expensive.

That said, I was at my neighborhood pizzeria yesterday, getting a slice of fuggazetta- and I noticed, a bottle of Stella to go was fifty pesos. And a bottle of Malbec to go was fifty pesos.
Crazy Country, thats all I can say.

 

[estebandepraga]

So true, Ries

 

[rickulivi]

I will reply to Churchill's original question; it was "[background=rgb(252, 252, 252)]If inflation really does turn out to be 30% this year, would it be expected that the peso dollar rate would also rise by 30% i.e. finishes around 18 or 19 pesos to the dollar? " Below is my answer.[/background]

[background=rgb(252, 252, 252)]Economist like to use the phrase "all things being equal" when examining questions such as Churchill's. This allows them to isolate one variable at a time, while keeping others constant. This way you can see the effect of changing the one variable.[/background]

[background=rgb(252, 252, 252)]Assuming there will be no large inflow or outflow of dollars, you can expect the peso to depreciate at a rate equal to the inflation rate, all other things being equal. So, if you expect inflation to go up 30% in 2016, you can expect the dollar to go up as much.[/background]

[background=rgb(252, 252, 252)]Here comes the difficult part. If Macri's planned infrastructure program is to be pulled off, you can expect a flood of dollars into the country. Therefore, all things being equal, if more dollars come in than go out, you can expect the dollar to appreciate LESS than inflation. In other words, the peso would strengthen and cost of living in BA would increase, when priced in dollars. If, to this scenario, you add more dollars being repatriated by Argentines who supposedly have billions stashed outside, you can expect the dollar to appreciate even less than the rate of inflation. BA will become a very expensive place, but with strong economic growth.[/background]

[background=rgb(252, 252, 252)]On the other hand, if Macri's ability to attract foreign dollars is less than expected, you can expect the dollar to appreciate even faster than the inflation rate, because dollars will be scare and the way Macri and Kristina will print and printed money, will make inflation soar, and the peso will devalue even faster. Not a nice scenario, but it will make BA very cheap, but very insecure, etc.[/background]

[background=rgb(252, 252, 252)]My prediction is that BA will start booming in a year or so, but it will become very expensive, unless Macri can do something to reduce the power of the unions to keep productivity so low. In the meantime, to make money, buy some Argentine government bonds. Real estate too makes a lot of sense. Both these will be big winners if Macri is successful.[/background]

[background=rgb(252, 252, 252)]Cheers![/background]