What Is Inflation?

Regrding salaries valued in USD during HER goverment, it was based on a ficticious value of the dollar. I can go to any bank now and buy a USD at 46 pesos. During HER goverment, the dollar was say 12 pesos, but you could not buy it legally ANYWHERE (remember the arbolitos CAMBIO, CAMBIO,etc).
Everything during her administracion was a LIE, an scenic mounting, it was sickening. The price of meat was cheap, but we lost millions of heads of cattle, and we ended up buying meat from URUGUAY.
All of a sudden we were richer than (of all places),GERMANY. I fear next time will be worse, since the price of the soy bean is 1/4th now than in 2009).
 
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 .
i don't think it's 100% fair to say the gov't just increased service costs. they removed subsidies that the gov't shouldn't have been paying for (e.g. printing money). for there to be stability the true cost of goods and services needs to be known.
 
i don't think it's 100% fair to say the gov't just increased service costs. they removed subsidies that the gov't shouldn't have been paying for (e.g. printing money). for there to be stability the true cost of goods and services needs to be known.

Prices went up 500% in real terms under Macris leadership . This has caused massive problems in Argentina as now the costs of services are equal to international prices even though Argentinians recieve very low wages . This has been one of the main drivers of the lack of consumption that you see today in Argentina . Prices of products in US dollars are skyhigh but peoples earning potential are at historic lows . Countries like Peru and Chile have very low inflation less than 4% per year as they have very prudent financial policy .
 
Let us address only the wages factor.

Easily. We live in an inflationary environment. Companies want to attract skilled workers. Companies that don't compensate at least partially for the inflation don't offer competitive salaries and cannot hire people. And their employees are upset with low salaries and go elsewhere.
 
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?
You are right - foreign borrowing per se does not increase inflation. There are two main types of foreign borrowing - first, borrowing directly from foreign governments/entities, like Argentina's yuan swap with China or Argentina's loan from the IMF. Second, borrowing in a foreign currency from investors, like Macri's various rounds of debt issuance in dollars. The difference between the two is the nature of the creditor - the former are singular entities while the issuance of bonds spreads the debt out among numerous investors.

Governments are like consumers - they borrow when they want to spend money they don't have. We take out a mortgage to buy a house. We enter a car loan to buy a car. We pay for the new TV with a credit card (excluding people who pay their balance every month). Governments borrow because there are spending priorities they can't meet with their existing resources.

Argentina issued many billions in dollar denominated debt under Macri, and most of that money has been brought back to Argentina for spending. Argentina issued dollar bonds. Argentina took the dollars and sold them to buy pesos. Argentina brought those pesos back here to spend on government services, infrastructure projects, etc... This increased the money supply, which provoked inflation.

Governments like to borrow in dollars for the reason you are probably deciphering right now - when they sell the dollars to buy their domestic currency, it strengthens the latter on the foreign exchange market. However, all those pesos still came back to domestic Argentina. The Argentine government spent them here, and this increases the money supply, which provokes inflation.
 
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.
This is a great observation. If wages keep rising, then how can inflation come under control?

We must differentiate between the CAUSE of inflation and the EFFECT of inflation. The cause of inflation in Argentina, put simply, is economic mismanagement by incompetent socialist politicians. Cristina wanted to buy votes with money the Argentine government didn't have. So she cranked up the printing press and created more pesos. She then spent those pesos on government subsidies, federal hiring, corrupt infrastructure projects, etc... This flooded the domestic economy with pesos. Each peso is worth less, so the price of goods and services rises - it takes more pesos to buy the same kilo of asado.

Economic actors must react to rising prices. As each business and worker sees its costs rising, it takes counteractive measures. For a worker, the easiest counteractive measure is to demand a wage increase. In a heavily unionized economy, wage increases are easier to procure. Employers raise wages, but they pass that increase in cost on to their consumers. And the chain reaction tears through the economy, as each economic actor does the same thing - raises prices to counteract inflation's increase in costs.

I think what you are saying is that this cycle is a crazy merry go round of insanity. Yep - that is an accurate observation.

To your point, government could implement a wage freeze. Some uber-radical governments have tried this. It doesn't go over well and usually there are hugely violent revolts in the street. Any politician that freezes wages on the worker will never, ever be reelected. To freeze wages is to place the onus on the common man/woman/family. It is much easier, and politically acceptable, to gather executives in a room and enforce a price freeze, ala precios cuidados in Argentina.

In addition, governments cannot stop inflation - they can only slow it down. So if a government freezes wages in a 55% inflation economy, the average family will hit the poverty level very quickly.

But back to my original point - a wage freeze would address only an EFFECT of inflation. It would not address a CAUSE.
 
Easily. We live in an inflationary environment. Companies want to attract skilled workers. Companies that don't compensate at least partially for the inflation don't offer competitive salaries and cannot hire people. And their employees are upset with low salaries and go elsewhere.

Fixing wages is not an option.
Wages increase is not a voluntary luxury, otherwise, people will riot on the streets, (let alone go elsewhere).

Thanks @lunar. It took 54 posts to clearly simply and directly head-on answer my question.

Now I graduate from my inflation class.
 
I agree that the crisis currently in Argentina is worse than greece and in just one year of this crisis the effect has been like three years in Greece . As much as I dislike Macri I also do not support Peronism .

MM is the worst of Peronism without any of the good.
 
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?

It is illegal to decrease the salary. Inflation is the ways it is done. It is a mistake to thing MM failed. He was very good in reducing the salaries in order to make more money.
 
Fixing wages is not an option.
Wages increase is not a voluntary luxury, otherwise, people will riot on the streets, (let alone go elsewhere).

Thanks @lunar. It took 54 posts to clearly simply and directly head-on answer my question.

Now I graduate from my inflation class.

As you can see peoples wages have been destroyed in this inflationary environment ( going down 50% in dollar terms in less than 2 years ) Prices also in US dollars are higher now for most items especially essentials of electricity, gas, condo fees, taxes, etc etc . Food prices in Argentina in US dollars are the highest in Latin America and now have surpassed even Uruguay in the last month . Bolivia and Peru both with higher minimum wages than Argentina have very cheap food and services . You can maintain a 2 bedroom property in peru for less than 100 dollars a month easily . In Argentina the cost would be close to three times as much .
 
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