Tourists are responsible for inflation

[sergio]

Yesterday a taxi driver insisted that tourists are responsible for inflation. I tried to point out that owners of businesses were the ones who set prices, not toutists. If owners are increasing some prices because tourists are willing to pay more, the blame rests with local business owners who are taking advantage of the toutist boom. The driver didn't agree. Tourists are responsible for inflation. So is there any truth to what the driver said? Are "tourists" (by that I think he includes resident expats with what he perceives to be lots of money) to blame for all or some of the inflation?

 

[Grazie]

Inflation, as Leith-Ross has said, is like sin, every government denounces it and yet every government practices it. Tourism and influx of their foreign dominant currency into Argentina is a contributing reason for inflation, yes, ( they can drive real estate prices up, hotel prices, etc) but it is not THE reason for inflation. An American economist, M. Friedman said that, Inflation is taxation without legislation.
My father used to say that inflation is paying $20.00 for a $10.00 haircut that he used to get for $5.00 when he had hair.
The taxi driver, Sergio,(who obviously feels the pain of inflation) is just misinformed on the mechanics of inflation. Thank you for helping him out.

 

[balover]

This is part of a April '07 report from the Latam Economist (2006 II ranked #1) from Morgan Stanley.
"Accommodative monetary policy poses grave and unnecessary risks in a high inflation environment. Last year marked the passing of Milton Friedman, a great economist. One of his most famous insights concerns inflation — “inflation is everywhere and always a monetary phenomenon.” The current administration in Argentina, and those in charge of the country’s economic management, would do well to heed those words, for inflation could unravel the many impressive achievements that the administration can point to in recent years. An accommodative monetary policy is not helpful in a high inflation environment. The authorities have adopted a set of highly charged political measures, such as semi-voluntary price agreements that look more like price controls in an effort to control inflation. However, if the fundamentally inflationary money creation is not curbed through increased sterilization or a strengthening of the exchange rate, political leverage is unlikely to prove an effective policy tool."

 

[Granadaiscool]

Price controls will backfire, they always have and always will.
Price subsidies are 1% of GNP now, in 2005 they were 0,5% so a 50% increase per year.
But prices will be raised after the elections, with leads to extra inflation.
Foreigners are mainly responsible for the high(er) rents. If they weren´t there would be more empty appartments, which leads to lower prices

 

[balover]

Soros agrees with you...

SAO PAULO, June 5 (Reuters) - Billionaire investor George Soros said on Tuesday that Brazil's currency is overvalued and Argentina is wrong to use price controls to stem inflationary pressures.
Soros, who has invested heavily in Argentina's agriculture through investment firm Adecoagro, criticized price controls introduced by President Nestor Kirchner on beef, vegetables and shoes. Inflation in Argentina is expected to rise 9.6 percent in 2007, little changed from 9.8 percent in 2006.
"I am very critical of price controls in Argentina -- I don't see that as the right way," Soros said at a news conference in Sao Paulo...

 

[donquixote]

Sorry about my lack of knowledge of Econonics 101. I was always under the impression that when a country has high inflation that it's currency becomes weaker. When it is weak against a currency like the Euro or the dollar the exchange rate ratio becomes greater. I have seen the exchange rate of the peso vs the dollar remain at 3:1 for the last 5 years. How do you explain this phenomenon? I dought that Argentina is buying dollars to prop up it's currency.

 

[Granadaiscool]

Sorry about my lack of knowledge of Econonics 101. I was always under the impression that when a country has high inflation that it's currency becomes weaker. When it is weak against a currency like the Euro or the dollar the exchange rate ratio becomes greater. I have seen the exchange rate of the peso vs the dollar remain at 3:1 for the last 5 years. How do you explain this phenomenon? I dought that Argentina is buying dollars to prop up it's currency.

The dollar that lost 40% of his value over the last 5 years

 

[sergio]

Donquixote, the Central Bank is constantly intervening to maintain the 3-1 exchange rate. This is the cornerstone of the Kirchner economic "policy".

 

[realba]

Donquixote, the Central Bank is constantly intervening to maintain the 3-1 exchange rate.

...

...by buying dollars and simply putting in a new order at the printing press to pay for them in pesos. the peso should be 2.1-2.3 against the dollar, which it will be when kirchner finally lets the currency float freely possibly after the next election but probably later next year. in the meantime, inflation will continue to bomb along at 9-30% (depending on who you believe-kirchner's cronies at Indek or your wallet when you go to the shops).

 

[Grazie]

Realba is "sort of" back, nice to see your postings. What is your take on the tourist-is-the-reason-for-Argentina- inflation theory?