What Is Inflation?

deadOA

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If they print 30% more bills, prices in pesos will go up 30%. At the same time, they turn around and raise wages in pesos up by 30%. Isn´t that is zero inflation?
Why would anyone call this 30% inflation?

If they don´t print money at all, wages will stay the same, and prices will go up only by real inflation (for me real inflation this way is definitely around 5% or so). The peso could have kept its dignity at a respectable level 3:1 or 4:1 or something like that.
So what is the point of printing money in the first place?

Or am I missing something?

BTW I hate those 100 pesos bills, you need a suitcase to carry a 100 Dollars worth.
You hardly ever see those 1000 peso bills anywhere.
 
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This is a complicated matter. But in general, inflation is the result of a supply/demand relationship. When there is great demand for a currency, both domestically and in foreign exchange, then the value of that currency tends to appreciate relative to other currencies and a basket of goods. When the opposite is true, the reverse reaction occurs.

Inflation in Argentina is a complicated matter. But the simplest explanation reverts to the Kirchner governments (both of 'em) and their socialist fondness for printing money. This expanded the money supply, i.e. the supply of pesos swelled, both in Argentina and in foreign exchange markets. More Argentine pesos in circulation depreciated its value relative to other currencies and other goods and services.

Macri is trying to strengthen the Argentine peso. He has been unable to shrink the money supply, because of inflation and Argentina's extensive socialist subsidies for all kinda constituencies. Instead, he has jacked up government interest rates to astounding levels, 71% a few days ago - the highest in the world. This is designed to create demand for the peso; he wants investors and currency traders to buy pesos and peso-denominated assets, thereby raising the peso's value against the dollar and other world currencies. Thus far, this policy has not succeeded.
 
Wondered this myself. Seems like it affects yours ability to travel internationally mostly
 
Argentina does not exist in a vacuum. There is global inflation in prices, for some things, which, in turn, affect argentine prices regardless of local inflation or wages. There is the fact that wages for different jobs in Argentina go up by different amounts, or dont go up at all- not everybody is in a sindicato. There are the ramifications of taxes, duties, and demand.
There is the weird market affect of everybody saving their money in physical dollars, and the real estate industry- which, with no mortgages, becomes a defacto banking mechanism.
There is the illegal movements of cash in and out of the country.
There are the artificial price supports in some areas by the government, and the invisible price raises in others by monopolies or near monopolies in vital industries.
There are things like Edenor and Edensur, which are effective monopolies, theoretically "regulated" by the government, but not very transparent in their operations.

Economists like to create theoretical models with "all things being equal".
But all things are never equal, and the bizarre Argentine economy makes them even less equal.

I do agree about how convenient 500 peso and 1000 peso bills are, however.
 
On the other hand, no Argentine has a single dime in peso saving. All their savings are in real state or in Dollar. Not a single Argentine feels such a thing as a 30 or 40 or 50% inflation. It is all bogus numbers on paper. If there was, there would be blood on the streets like 2001.
Printing pesos is one of the factors leading to such outrageous numbers. So why do they print if at the same time they raise wages by the same amount?
It would make more sense if they print but not increase wages. That would be true inflation.
 
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People I talk to don't receive wage increases equal to inflation. Didn't teachers strike last year because their 20- something % raise was way short of inflation and price increases?
 
I am saying (bogus inflation - wage increase = 5% true inflation) give or take.
It is not 30 or 40 or 50% or anything of the sort. There has to be riots and unrest at these outrageous numbers.
Question remains, why do they print?
What does printing achieve?
 
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I am saying (bogus inflation - wage increase = 5% true inflation) give or take.
It is not 30 or 40 or 50% or anything of the sort. There has to be riots and unrest at these outrageous numbers.
Question remains, why do they print?
What does printing achieve?
You are on the right track, but you have to change one variable in your equation. Inflation is not the increase in prices vs. the change in salaries or consumer purchasing power. Inflation is the increase in prices against a basket of goods in a domestic economy. You are right to observe the wage raises that constantly take place in Argentina. But these are measures designed to offset inflation for the benefit of the recipients.

So instead of looking at inflation vs. wage rates, look at pesos vs. a kilo of ice cream. How many pesos need to be exchanged today to get a kilo of helado? How many were needed a year ago? Assuming ingredients are the same, that's how we measure inflation.

If inflation continues at 55% per year, and there are no wage increases, then we will see the riots you speak of.

Governments print money for many reasons. In a socialist economy, the most common reason for printing currency is to pay bills the government doesn't have the money to pay. Imagine if you had a printing press in your home that could produce legitimate pesos. Your salary is not sufficient to purchase everything that you would like for the month. So you crank up your press, print more pesos and buy what you want. Voila. You now have "unlimited" purchasing power. Unfortunately, if you print enough pesos, you grow the money supply so that each peso is worth less relative to domestic goods, and so prices rise. In simplistic terms, that is one way inflation occurs.

Socialist governments like Venezuela and Argentina, also print money to buy votes. The government coffers have little or no money, but the government wants/needs to give handouts regardless. The government cranks up the press, prints pesos and hands them out. Same as if you had a peso press in your home. Again, when done on a large scale, the value of each peso is reduced and prices will rise, i.e. inflation. This was Christina's economic master plan.
 
I am saying (bogus inflation - wage increase = 5% true inflation) give or take.
It is not 30 or 40 or 50% or anything of the sort. There has to be riots and unrest at these outrageous numbers.
Question remains, why do they print?
What does printing achieve?


You must understand that Argentinians have a very high tolerance to inflation and wild fluctuations in their economy . If this was Australia or USA there would be mass unrest but here people are passive agressive as they have been broken by over 50 years of financial upheaval that has made Argentina synonymous with financial distress . Wages are not going up even half of inflation numbers running at 50% per year . Wages at most are going up 25% for some unions. Most people are struggling to survive and do not have extra money to purchase more than then most basic items . I have been here 13 years and have never seen it so bad as now . The consumption in shops is the lowest I have seen , most restaurants are struggling except the best or the cheapest . real estate transactions have dropped nearly 60%. This is a very serious crash . Of course if you live in Recoleta , Palermo, or Puerto Madero you will less sign of this but even in Palermo Soho there is a desocupation rate of small business of nearly 15% . Walk around that neighbourhood in the commmercial district and you will see that on every block there are 2 or 3 shops empty ., On The best plaza in the neighbourhood Plaza Armenia there are two corner locals empty now for over 4 months . This is unheard of normally as corner locals have always been snapped up fast. People are not willing to invest in small business as the numbers do no add up anymore . The costs are astronomical creating a situation that only 20% are doing well .

I love Argentina deeply and it makes me very angry and distressed what is happening in this country . Argentinians are very talented , creative people but they need incentives to build a solid economy . The current government has sucked out the life force of this society and the debt they have accumulated will be the deathknell for this economy for many more years no matter who wins in November 2019 .

What do we do as expats ride it out of leave for fresher pastures?
 
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