So, Price Controls. When Will We Begin To See Shortages?

[camberiu]

I believe I heard the NPR piece Montauk Project is referring too and I think she was oversimplifying a bit for the sake of brevity. *I* thought it was great, though admittedly economics continue to completely baffle me. Here's a link to the audio:
http://www.thisameri...oney?act=1#play

If you'd like the whole thing as an mp3, I've got it so PM me.

i've just finished hearing the whole thing. It is not inaccurate, but NPR was more focused in telling a nice embellished story than focusing on the hard events.

The so called "crazy plan" was nothing but the dollarization of the Brazilian economy. The "virtual" currency was simply pegged to the dollar and all prices were dollarized. There is nothing really incredible, magical or revolutionary about that. Argentina did the same thing even before Brazil, during the "convertibilidad". This was just the "painkiller" to provide immediate and quick relief to the pain of inflation.
The real "magic" happened afterward, once inflation was tamed. That is when the real deep, painful and difficult reforms to address the true underlaying causes of inflation began. And that is where the paths of Brazil and Argentina began to diverge. The FHC government was willing to pay the very heavy political cost of conducting those reforms. The Menen government here in Argentina was not. The FHC government knew that the dollarization of the economy was a palliative measure and that its effects would run out soon, so deep reforms were critical. The Menen government was either unaware, unwilling or unable to conduct the necessary reforms, so they simply did nothing, hoping that the convertibilidad would last forever. We all know how that ended.

The reforms done in Brazil were not easy. The political costs were tremendous. FHC was not able to elected a successor, and his party has not been able to win a major election in Brazil ever since. Lula came to power as a backlash to the political/economic reforms done by FHC, and he was the one to reap the benefits of those painful reforms. The Lula and Dilma administrations have actually undone many of those hard done reforms, and that is why I am not optimistic at all about Brazil.

 

[Rich One]

Is thats story 'real'?

Si non e vero e ben Trovato!!! (first time I hear this story)

 

[Montauk_Project]

Sorry if my explanation was oversimplistic! I guess the NPR story was not as complete as it should have been.
One thing about the poll: their is a built in bias, because another option would be that there will be no shortages but the inflation will not be resolved. There have been many price controls in the past in Argentina that did not curb inflation, but that did not create shortages as well (talking about recent past).

 

[lamarque]

In order to create a shortage this controls have to be much longer and starting in lower prices not in the maximun prices, at this prices the supermarket chains are happy to sell for 3 month, and then when the 3 month finish they will still have a big margin to maneouver but still they will probably increase price just in case the government go for another control, so at the end the government control just generate that the supermarket increase the price more than they would if there weren't controls, just in case, to be covered of any control the government could come with in the near future.

 

[JamJam]

In order to create a shortage this controls have to be much longer and starting in lower prices not in the maximun prices, at this prices the supermarket chains are happy to sell for 3 month, and then when the 3 month finish they will still have a big margin to maneouver but still they will probably increase price just in case the government go for another control, so at the end the government control just generate that the supermarket increase the price more than they would if there weren't controls, just in case, to be covered of any control the government could come with in the near future.

Yep, I don't think this 2 month price freeze will do much, lets just hope its not going to go any further than this. I have no idea if this will be the start of something bigger or just the next stunt by Botox Face.
Funny how people are quick to stir up shit. But hey this is the internet

 

[Rich One]

Someone suggested that the supermarkets will fix the prices at the Feb 1 levels. What happened to prices Jan. 31 ?? :wub:

 

[citygirl]

In order to create a shortage this controls have to be much longer and starting in lower prices not in the maximun prices, at this prices the supermarket chains are happy to sell for 3 month, and then when the 3 month finish they will still have a big margin to maneouver but still they will probably increase price just in case the government go for another control, so at the end the government control just generate that the supermarket increase the price more than they would if there weren't controls, just in case, to be covered of any control the government could come with in the near future.

Actually, that's completely inaccurate. Most supermarkets don't keep a great deal on inventory on hand (basic SCM, you don't want a lot of inventory sitting around as it costs a great deal of money to store it, you need physical plant to have a place to store, etc). What will happen is that supermarkets simply won't reorder the out of stock items until the price freeze is over. And given people are going to buy in bulk now if possible, it's fairly likely you'll see out of stock items sooner rather than later.

 

[Rich One]

To report any changes of prices in any supermarket call Pipi Colombo 800 number... no answer today, just a recording? jajaja

 

[lamarque]

Actually, that's completely inaccurate. Most supermarkets don't keep a great deal on inventory on hand (basic SCM, you don't want a lot of inventory sitting around as it costs a great deal of money to store it, you need physical plant to have a place to store, etc). What will happen is that supermarkets simply won't reorder the out of stock items until the price freeze is over. And given people are going to buy in bulk now if possible, it's fairly likely you'll see out of stock items sooner rather than later.

They have enought margin to deal with small increases on price in the providers for 3 months, and the big supermarket have negotiation power to deal with it for a short period of time, they don't need to store the products who talk about storing products??? (that is financially insane for a supermarket) they will deal as always jus putting more presure on the providers, they have just rise the prices more than any other period before, they are with a good margin for a 3 months period, really bad shit have to happen to make them loose money with this 3 months control, when the 3 month period close they will hurry another rise in prices even if they don't need it, so the final effect is worst than the desired slow down on inflation that the government want. Is really bad measure and only make things worst but will not cause shortage, if this agreement would have been for a year then is a diferent conversation.

PLease read well the post, i never say that the supermarkets will store products for 3 month lol, that insane

 

[citygirl]

Perhaps I didn't understand , when you said it wouldn't cause shortages (first sentence you wrote) - I was responding to disagree. my point is that you *will* see shortages b/c I doubt the supermarkets will reorder their supplies until the price freezes are up. So it will affect the consumers (in a negative manner). Supermarkets have very little margin - they make their profit based on quantity sold. The average profit margin in supermarkets is about 1%. So no, they don't have margin to deal with price increases and pushing back on their suppliers will probably not work much b/c the suppliers don't really have the power to negotiate with the unions, etc to cut costs. Nor do they have the stock on hand to restock their shelves during this freeze.

We are in agreement however that these controls will have no real effect. There will be limited supply until the controls are lifted, then the supermarkets will raise the prices and then re-order. It's a lose/lose.