What Is Inflation?

[TheDonald]

A lesson in the economics of inflation is taking place right in front of us.

Yesterday, the BCRA announced what is effectively an abandonment in the floor for the Argentine peso: they will now intervene at will. Previously, when the peso market was calmer, the floor was set at 51.5. They also announced an increase in the amount of potential intervention, i.e amount of dollars they will sell to buy pesos.

This morning, YPF announced a 4% increase in the price of various fuels. Competitors followed. This is the fourth petroleum price increase in 2019.

Macri's action has one goal in mind: reduce inflation.

YPF's action will produce one result: increase inflation.

There is a battle going on.

 

[deadOA]

increase in the amount of potential intervention, i.e amount of dollars they will sell to buy pesos.

Hasn´t this approach been tried gazillions of times before? Haven't we seen the results of this approach before?

My dumb question is: Why try?
We all agree from previous posts that 55% inflation is just a number (means little by itself).
Purchasing power erosion of 5% is normal and livable.
Why fix it, if it ain´t broke?
Again what is the point?
What are we trying to achieve?
I understand the picture you painted for me: Macri is trying to pay the monthly bills (with time lag increase every month) with money he doesn´t have.
I am still not clear. Continuing this sounds useless.

 

[perry]

It is true and correct that inflation is 55% (but it means little by itself).
The purchasing power of both locals and foreigners is eroding by only 5% (give or take). Far cry from the 55%.

The city is as vibrant as ever, people are more prosperous today than yesterday. The wages (in equivalent US$) of the majority are much higher today than yesterday.

Nowhere can be seen the doom and gloom desperation stories of 2001.
I don´t see it.

Hasn´t this approach been tried gazillions of times before? Haven't we seen the results of this approach before?

My dumb question is: Why try?
We all agree from previous posts that 55% inflation is just a number (means little by itself).
Purchasing power erosion of 5% is normal and livable.
Why fix it, if it ain´t broke?
Again what is the point?
What is he trying to achieve?

Where do you get your figures from ? Peoples purchasing power has been eroded much more than 5% in the last year . Most peoples purchasing power has been eroded close to 50% since 2017 . This is tragic and is the reason that there is no consumption in shops in most neighbourhoods of the capital federal and the province .

Did you know that the minimum wage of Argentina is now lower than Bolivias at only US$ 257 per month . When Macri took power the minimum wage in Argentina was US$ 589 . Argentina has fallen from the top country in earning potential of Latin America to the 7th .

https://gestionsindical.com/el-salario-minimo-argentino-ya-es-mas-bajo-que-el-de-bolivia/

In regards to the city of Buenos Aires yes it looks better than 10 years ago due to much less rubbish , the upgrade of parks and monuments , and newer cars brought by credit in the good times . Pyongyang the capital North Korea also looks beautiful and very clean but does this indicate that the North Koreans have a great life?

 

[deadOA]

My conclusions are based only on what I see and the people I know.
Admit not enough.

 

[deadOA]

Most peoples purchasing power has been eroded close to 50% since 2017 .

So why there no riots on the streets? Why there is no collapse of the real estate and all prices?

 

[perry]

So why there no riots on the streets? Why there is no collapse of the real estate and all prices?

Argentinians have been manipulated for close to 50 years with economic crashes terminating in booms and busts . There are no people in the western world as tolerant to massive swings in their purchasing power as they have lived through this situation many times . I believe though that this economic downturn will be more profound than 2001 while a shocking collapse the economy was booming again by 2003 . This time it will be a more protacted recession for many years similar to what has happened to Greece .

Now if you live in a top area peoples lives are not so affected as they have savings in us dollars to tide them over . The majority of people in Argentina live paycheck by paycheck and are just surviving . What helps them more than other societies in the west is the strong family structures where families or pitch in to help .

In regards to real estate and its prices please note that there has been a collapse in the purchase of them with over 55% less deeds recorded in the last months in Capital Federal . In the province its much worse. Its true though that if you look at the ads online you will see ridiculous prices still as the real estate market here is pure spectulation without any defined system of real values as is the case in USA or Australia . For the smart investor there are good deals out there but one must look and make an offer . Serious sellers are taking offers of 20% less than asking price now .

Please click on link for the current situation

https://www.infobae.com/economia/20...-caida-de-554-por-ciento/?outputType=amp-type

 

[sts7049]

So why there no riots on the streets? Why there is no collapse of the real estate and all prices?

you should stop by plaza de mayo today

 

[TheDonald]

Hasn´t this approach been tried gazillions of times before? Haven't we seen the results of this approach before?

My dumb question is: Why try?
We all agree from previous posts that 55% inflation is just a number (means little by itself).
Purchasing power erosion of 5% is normal and livable.
Why fix it, if it ain´t broke?
Again what is the point?
What are we trying to achieve?
I understand the picture you painted for me: Macri is trying to pay the monthly bills (with time lag increase every month) with money he doesn´t have.
I am still not clear. Continuing this sounds useless.

Yes, it has been tried before. Many times. Currency intervention by countries with small foreign exchange reserves never produces any lasting effect. When currency traders and investors want to sell a currency down, it's like a tidal wave folding over a sailboat.

Macri swept into office under the mantra of change, a return to capitalist economic principles, eradication of corruption, freer markets, consumer power. Macri planned to save Argentina. For the first 3.5 years of his term, Macri pursued this agenda - but inflation has accelerated, not declined. Consumers feel worse off, not better. Investors are selling down the Argentine peso and Argentine assets because recent polls show that Christina's probability of victory in October is increasing.

And professional investors dislike socialists even more than I do.

Now Macri has turned his ship around 180 degrees; he is in panic. Price controls, currency floor abandonment, 73% interest rates...these are all measures to reduce inflation in order to stand a chance at reelection in 6 months. And they are polar opposite to what he preached in 2015. The objective of the Macri admin has gone from "We're Here to Save Argentina" to "Get Reelected in October." Macri is now at risk of becoming nothing more in Argentine history than a placeholder that was bookended by two terms of Christina. At this point, Macri will do just about anything to get one more vote than Christina in October and thereby continue his presidency.

A few years ago, a friend was dying of cancer. I was in the room when the doctor asked, "How far do you want to take this?" My friend answered, "All the way. The upside sounds pretty good and the downside, well, let's not talk about that." From a political/ego/legacy perspective, Macri is in the same position. In October, it's all or nothing.

 

[Bajo_cero2]

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.

No. Or uncomplete.
The parity peso/usd influence on inflation a lot and that was the mistake of this government.
The capital flight was record so there is always a lack of usd and this affects inflation. This is why CFK had 25% while now it is over 60%.

 

[Joglide]

Professional investors dislike losing money (and uncertainity) even more than socialism and Macri has shown many smaller businesses how to lose money.

If you are a socialist or communist economy like China on the other hand then you can attract foreign investment and businesses en masse by posting the most spectacular growth rates of the last 40 years and using your massive trade surpluses to buy most of American bond debt. Capitalism can live with almost anyone as long as they post profits. If Christina helps business they would dance her tune but both she and Macri have the elephant of massive and almost unmanageable IMF loan debt to handle over the next decade. My reiterated view is that they would have to purse broadly similar policies because the room for manoeuvre is so restricted as the experience of Greece has shown.