What Is Inflation?

[TheDonald]

I get all that.
What I don´t get is increasing wages at the same time simultaneously.
It offsets the purpose of printing in the first place.

2 competing factors are being pushed both in the same direction.
Would it make more sense if they were pushed in opposite directions?
Or, at least fix one factor and push the other factor in the direction you want.

You are right: prices and wages do move in the same direction. And you are also right that to a great degree, they cancel each other out. But the source of inflation and the victims of inflation are distinct groups; the former is not responsible for how the latter deals with inflation.

In Argentina, the main source of inflation has historically been socialist politicians. They print money to buy votes. They do this by spending money the government doesn't have. They either print money with a press (Cristina) or borrow it abroad (Macri). An increase in the money supply makes each unit of money worth less, so it causes inflation.

When a government spends beyond its means by printing money, it starts a chain reaction. There are more pesos out there, so each peso is worth less. Banks are closest to the gears of government, so they act first. They raise interest rates. Now YPF needs more pesos to pay interest to the bank and to buy a barrel of oil, so they raise the price of gas. Now truckers need more pesos to buy gas to deliver flour, so they raise the price of delivery. Now bakeries need more pesos to buy flour to make bread, so they raise price of bread. Now the worker needs more pesos to buy bread, so he demands a raise from his/her employer. Now the employer has to pay higher wages so they raise prices on whatever they sell. On and on it goes. It ripples destructively all through the economy.

 

[lunar]

You are right: prices and wages do move in the same direction. And you are also right that to a great degree, they cancel each other out. But the source of inflation and the victims of inflation are distinct groups; the former is not responsible for how the latter deals with inflation.

I do not see how borrowing from foreign countries increases inflation here in Argentina. Borrowed money is not distributed to the general population. Conditions on these loans (like removing subsidies) put pressure on customer spending. If people have less money to spend, where does the inflation come from?

 

[perry]

I do not see how borrowing from foreign countries increases inflation here in Argentina. Borrowed money is not distributed to the general population. Conditions on these loans (like removing subsidies) put pressure on customer spending. If people have less money to spend, where does the inflation come from?

Inflation in Argentina is caused only by government. People are spending nothing now as they only have the essential . Creating a casino economy with the highest payouts on bonds in the world creates huge inflation . Rich people instead of investing in business and employing people will just bet on the casino economy as the payouts are very high and risks are lower than running your own business .

 

[lunar]

Inflation in Argentina is caused only by government.

Oh yeah, blame the government. How original.

People are spending nothing now as they only have the essential .

And who is buying stuff at these inflated prices then? Extraterrestrials?

Creating a casino economy with the highest payouts on bonds in the world creates huge inflation .

This is the other way around. The government is trying to make buying dollars less attractive by giving high interest rates on bonds in pesos. It is fighting the inflation this way.

And what about foreign borrowing, by the way? How does it increase inflation?

 

[deadOA]

I do not see how borrowing from foreign countries increases inflation here in Argentina. Borrowed money is not distributed to the general population. Conditions on these loans (like removing subsidies) put pressure on customer spending. If people have less money to spend, where does the inflation come from?

Exactly addressing my question.
Why are they raising wages?
It is offsetting and defeating the intended goal. (if that is what they are trying to do)

Fix the wages factor, people have less to spend, kill inflation. (all other inflationary factors remain the same)

I do not see depressed Argentine wages. Wages today, in US$ equivalent, are higher than yesterday.

 

[lunar]

Exactly addressing my question.
Why are they raising wages?

Who are "they"?

Government prints the money.

Increased wages that you see as a compensation is a burden for businesses, not the government.
This is not centralized. Individual labor unions make deals with businesses or business associations.

 

[perry]

Oh yeah, blame the government. How original.



And who is buying stuff at these inflated prices then? Extraterrestrials?



This is the other way around. The government is trying to make buying dollars less attractive by giving high interest rates on bonds in pesos. It is fighting the inflation this way.

And what about foreign borrowing, by the way? How does it increase inflation?

I have lived here for 16 years and have never ever seen so little spending by the middle class like now . Inflation is not caused by people overspending it is caused by the government creating huge debt that it has no chance to pay back and then using foreign reserves to change into pesos as to defend the currency . Absolute fools . the current government has increased service costs over 500% in the last few years causing the huge inflation that we have now . No government in the western world has taken these decisions and that it why Argentina is in the position that it is in .

 

[perry]

Exactly addressing my question.
Why are they raising wages?
It is offsetting and defeating the intended goal. (if that is what they are trying to do)

Fix the wages factor, people have less to spend, kill inflation. (all other inflationary factors remain the same)

I do not see depressed Argentine wages. Wages today, in US$ equivalent, are higher than yesterday.

Is this for real? Wages in US dollars are half what they were in 2015 and costs were much less in us dollars than now . Argentina once had the highest minimum wage in Latin America now it is 8th on the list with a minimum wage of just US$ 280 per month . People have no money to spend except a small upper class in Capital Federal at most 10 % of all Argentinians.

 

[deadOA]

Who are "they"?

Government prints the money.

Increased wages that you see as a compensation is a burden for businesses, not the government.
This is not centralized. Individual labor unions make deals with businesses or business associations.

Txs for taking the time.

"They" mean both government and business employers as well (regardless of being a burden).
Across the board, wages are increasing.

Please, to keep addressing my question in point, let us agree on not introducing other factors of inflation.
Let us address only the wages factor.

 

[perry]

Txs for taking the time.

"They" mean both government and business employers as well (regardless of being a burden).
Across the board, wages are increasing.

Please, to keep addressing my question in point, let us agree on not introducing other factors of inflation.
Let us address only the wages factor.( wage

Where are wages increasing in US dollars in Argentina ?. They have been decimated in the last years by over 50% in US dollar terms . The minimum wage in Argentina is now lower than Bolivia and Paraguay .