What Is Inflation?

Yea I talk with them about often. Standard reply. This Argentina we always have the crisis cycle. I kind of see it like someone saying we always have a car accident but we survive. My thoughts are then, what happens when the accident is fatal?
 
I think now I got it.
What I called "bogus inflation" is true inflation.
What I called "true inflation" is purchasing power.

@TheDonald: Paying monthly bills answers my question of why print 30% and increase wages 25% instead of just printing only the 5% difference and no wage increase. It is because of the time lag between printing today and the next bill becomes higher (regardless of wages increase). Vicious circle situation. Picture clear.

My next question is: I really don´t see purchasing power decreasing at all. I see Argentines are always better and more prosperous today than yesterday. I really think that their wages in equivalent $Dollar today are higher than yesterday. The city is more vibrant than ever. Why am I seeing differently?

P.S. I could not help but notice you slipping in capitalism vs. socialism argument. But this is for another day.
 
Last edited:
I know a LOT of argentines who havent gotten 30% increases. A huge amount of the millenial argentines I know are not full time salaried employees, but free lancers, gig economy kids, people who juggle 2 or 3 part time en negro jobs, and self employed people. They are getting squeezed big time, and have no big union to negotiate for them.
On the other hand, everything does not go up in price at the same rate from inflation- obviously, imported goods, which are paid for in dollars, respond to the currency exchange rate pretty quickly.
And Industria Argentina products vary wildly in pricing surges.
Commodities generally respond pretty quickly to inflation- they are easy to track economy wide, and if one chino is charging a certain price for milk, everybody else will be close.

Other things, however, are much more unpredictable.
In many industries, wholesalers stockpile when prices are low- so, for instance, the price for this years fancy Italian silk fabric has gone up a lot- but there are other fabric dealers with a warehouse of rolls of silk, some of which they purchased as long ago as 20 years- and so they have the discretion to raise prices as they see fit, staying below the fresh imports.

The argentine economy generally plays by no established economic rules- thats why nobody can fix it, and every time standard global fixes are tried, they fail in new and unexpected ways.

Inflation is a huge problem- but not an easy one to measure or describe, beyond a few obvious things like Iphones or Starbucks.
I can find a price range, for essentially the same product, of around 30% to 50%, if I look hard enough, for some things- its perplexing. The exact same thing can cost double, 2 miles away.

Do you own the building your business is in?
Or rent?
Many times, you see stores that should not, by standard economic rules, be in business. But for invisible reasons, they are, while predictable sure things go out of business.
 
I think now I got it.
What I called "bogus inflation" is true inflation.
What I called "true inflation" is purchasing power.

@TheDonald: Paying monthly bills answers my question of why print 30% and increase wages 25% instead of just printing only the 5% difference and no wage increase. It is because of the time lag between printing today and the next bill becomes higher (regardless of wages increase). Vicious circle situation. Picture clear.

My next question is: I really don´t see purchasing power decreasing at all. I see Argentines are always better and more prosperous today than yesterday. I really think that their wages in equivalent $Dollar today are higher than yesterday. The city is more vibrant than ever. Why am I seeing differently?

P.S. I could not help but notice you slipping in capitalism vs. socialism argument. But this is for another day.
Yeah, you got the idea.

You raise a good point about the discrepancy between wages and inflation. It was recently reported that Argentine inflation for the last 12 months was 55%. Simplifying a bit, if a family receives a 55% increase in wages, then the loss in purchasing power is zero. However, it is very difficult to persuade a boss or a business or a government entity to raise its payments by 55%. I don't have any figures, but my guess is that most Argentines are experiencing erosion in purchasing power due to wage increases less than inflation.

But as you point out, if a family procures a 45% wage increase, then the discrepancy with inflation of 10% may not make an enormous dent in their purchasing power or their lifestyle. However, over any length of time, such discrepancies are unsustainable.

One way for the wealthy to combat inflation is to buy the peso-denominated Argentine government bonds. I have been saying for several months that if I had a high paying job in pesos, I would be buying the Leliqs all day long. Given they are peso-denominated, the chance of default approaches nada (a nod to your money printing observation). And they currently pay out 71% annually, which is 16% better than inflation. Nowhere else in the world can you get a "real" yield of 16%.

"Real" yield is an economic term that measures the difference bewteen nominal rates (71%) and inflation (55%).

The assumption for buying the Leliqs today would be that inflation over the next 12 months won't exceed 55%. I would take that bet.
 
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.


Fair comments though somewhat anti socialist and rather harsh on left versus right wing governments. In fact Carlos Menem was a neo liberal pro business Peronist who inherited hyper inflation from Alfonsin and had three years of high inflation before bringing it under strict control. De la Rua was a centrist/social democrat overtaken by a deep crisis though inflation was not galloping under him and though the figures are always suspect it seems that inflation was large single digit under the Kircheners until 2012/13. It is under the probusiness conservative Macri that inflation has doubled from 25 to 50% in the past year. Not sure I agree that CK had a master plan of high inflation since most of her tenure had moderate inflation and not sure Macri has a master plan of runaway inflation though I think his aim of letting prices run ahead of real incomes is a deliberate policy to squeeze some costs out the system. The problem is that people cannot be fooled all the time and now realise that they are progressively getting poorer and their purchasing power diminishing with little tangible sign of progress in the real economy. Business confidence has also taken a serious knock and observers are now openly questioning how long the IMF can continue to back a loser even though an election makes him their only viable candidate.
 
One should keep in mind these things take time to play out. This is just the beginning and with the help the IMF the can just got kicked down the road which could make it much worse in the end. I have friends that have already lost jobs due to companies downsizing. I have another friend that works freelance his work is way down. I am seeing businesses closing; my favorite butcher is not doing so great there noticeably fewer people there buying meat in his shop then there were a year ago.

https://www.reuters.com/article/us-...sis-is-changing-argentinas-diet-idUSKCN1N41DO
 
The Donald has some excellent points. I get the same question from many of my friends that go down to Buenos Aires. They are puzzled as the economy is supposed to be really bad but they see restaurants/bars always full. I explain that because the currency is depreciating so fast, the locals have NO incentive to save and they spend their money as fast as it comes in.

Also, you have to remember there are many wealthy locals. So even if 10% of the Capital is affluent that is a lot of people spending a lot of money going out. As well, many millennials live at home much later in life compared to first world countries where everyone is itching to move out as quickly as possible.

The situation in Argentina and inflation is a pretty hopefulness situation. There will continue to be severe economic instability between relative periods of calm. So you can either stay and learn to cope with it (which many do) or leave Argentina for greener and more stable pastures (which many have done as well).
 
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 riots and unrest stories of 2001.
I don´t see it.
 
Last edited:
Back
Top