I think that one of the main driving points of inflation is the idiotic self fulfilling prophecy of expecting the inflation to hit at least 20% a year. The one thing it comes out very clearly is in rental agreements. There is not a rental agreement which I have seen where the increase is not 10% per 6 months or 20% a year. If you think about the implications of it then it becomes clear what the consequences are. Imagine the following scenario:
Employer pays a employee a salary of 5000 pesos a month (say a waiter in a restaurant).
The employee rents his home/apartment, which is in many cases a big chunk out, say for example 50%, of their income.
Now that chunk increases by 20% per year.
In other words; the salary of the employee needs to grow as well with 50% x 20% = 10% a year to cover only the rent increase.
Since the employer pays about 40-50% on top of the salary in taxes/social security etc, the increase from the point of view of the employer is actually about 15%.
At the same time the employer might rent the business location (restaurant) and he is faced with the same increase in rent.
So on top of the employee cost increase, he has to deal with a rent increase too.
The only way for the employer to survive is by increasing the prices of his products.
The increase of the price will be at least the 20% which was "expected" to happen.
The above scenario is of course very applicable to many different businesses...
A "solution" for taming the inflation a bit could be creating a law which doesn't allow increases of 20% per year in rent. Say that they bring it down to a max of 15% in the first year, to max 10% the 2nd year and then a final max of 5-7% all years after... The first year the effect will not be that great, but after a few years the effect will be very visible. A law like this will benefit a large part of Argentines...
However it cannot be the only thing the government does. But it should be a part of it.
A big thing what needs to change too is the huge involvement of the government in private businesses. Either direct or indirect.
I do understand up to a certain point that an import restriction will benefit local businesses, but the requirement of the benefit is that there is a local business which can actually replace the imported goods with equal quality local products. And that is the big problem in Argentina. Either the locally made product is not available, or it is of such a low quality that it doesn't deserve to be "protected".
As far as I know if a company needs to import raw materials to produce a product in Argentina, the government limits the amount of the import based on the amount the company exports. So a product which is needed on the local market might not become available to the local market in sufficient quantities since the manufacturer needs to export their product to be able to import the raw materials. Then on top of this all, if I am informed correctly, the government limits the export of the local products too, so basically limiting the import options of companies. It just doesn't make sense... Exporting products means influx of foreign currency, which Argentina really needs....The only reason which I can think of being the reason behind this all is the urge of the government to control the distribution of wealth...
So that is another thing the government should stop immediately. Make the local businesses more competitive by reducing the "expected 20% inflation", and at the same time stop restricting all imports and exports...
Maybe I am wrong in this all... The only thing I know is that what is happening at this moment is anything but good for the country....
Employer pays a employee a salary of 5000 pesos a month (say a waiter in a restaurant).
The employee rents his home/apartment, which is in many cases a big chunk out, say for example 50%, of their income.
Now that chunk increases by 20% per year.
In other words; the salary of the employee needs to grow as well with 50% x 20% = 10% a year to cover only the rent increase.
Since the employer pays about 40-50% on top of the salary in taxes/social security etc, the increase from the point of view of the employer is actually about 15%.
At the same time the employer might rent the business location (restaurant) and he is faced with the same increase in rent.
So on top of the employee cost increase, he has to deal with a rent increase too.
The only way for the employer to survive is by increasing the prices of his products.
The increase of the price will be at least the 20% which was "expected" to happen.
The above scenario is of course very applicable to many different businesses...
A "solution" for taming the inflation a bit could be creating a law which doesn't allow increases of 20% per year in rent. Say that they bring it down to a max of 15% in the first year, to max 10% the 2nd year and then a final max of 5-7% all years after... The first year the effect will not be that great, but after a few years the effect will be very visible. A law like this will benefit a large part of Argentines...
However it cannot be the only thing the government does. But it should be a part of it.
A big thing what needs to change too is the huge involvement of the government in private businesses. Either direct or indirect.
I do understand up to a certain point that an import restriction will benefit local businesses, but the requirement of the benefit is that there is a local business which can actually replace the imported goods with equal quality local products. And that is the big problem in Argentina. Either the locally made product is not available, or it is of such a low quality that it doesn't deserve to be "protected".
As far as I know if a company needs to import raw materials to produce a product in Argentina, the government limits the amount of the import based on the amount the company exports. So a product which is needed on the local market might not become available to the local market in sufficient quantities since the manufacturer needs to export their product to be able to import the raw materials. Then on top of this all, if I am informed correctly, the government limits the export of the local products too, so basically limiting the import options of companies. It just doesn't make sense... Exporting products means influx of foreign currency, which Argentina really needs....The only reason which I can think of being the reason behind this all is the urge of the government to control the distribution of wealth...
So that is another thing the government should stop immediately. Make the local businesses more competitive by reducing the "expected 20% inflation", and at the same time stop restricting all imports and exports...
Maybe I am wrong in this all... The only thing I know is that what is happening at this moment is anything but good for the country....
