Argentina learns to live with its inflation dragon – Financial Times


There is a look of tired resignation on Mariano Vallejo’s face as he pulls up at his local petrol station in Buenos Aires. Glancing at the price for a litre of fuel, which has doubled over the past two years and is about to go up again, he sighs.

“If it’s not petrol, it’s something else. Prices just keep on rising relentlessly. But that’s nothing new — this is Argentina,” he says bleakly, asking the pump attendant for just half a tank, and resolving to use his car a bit less. 

A recent run on the peso is pushing inflation ever higher. Prices could rise by as much as 30 per cent this year — or about triple the rate that President Mauricio Macri was hoping for in 2018. But for most Argentines, this is business as usual

With the exception of a currency board experiment in the 1990s that ended with a disastrous financial crash in 2001, Argentines have lived with punishingly high inflation for longer than most can remember. Many have developed an unusually high tolerance for an economic phenomenon that consumers elsewhere are often scarcely aware of. 

“Consumers here are well trained in the art of coping with inflation,” said Marcos Novaro, a sociologist at the University of Buenos Aires, who said that economic prosperity and employment were greater concerns than inflation. 

Whether it is identifying the best moment to buy a given product because it is relatively cheap, purchasing goods in as many instalments as possible since they get cheaper over time, or simply saving in dollars given inflation’s destructive impact on the value of the peso, such practices are second nature to Argentines. 

“Inflation is a problem, sure, but we are used to it. Personally, I buy dollars whenever I can,” said Gloria Carrasco, a housewife who still shudders as she recalls the bout of hyperinflation in 1989 when prices rose by 3,079 per cent. These days she is far more worried about crime. 

Businesses have learnt to live with inflation too — and even profit from it. “Companies can always just pass higher costs on to consumers. There’s no doubt that some take advantage of volatile economic situations and bump up prices more than they need to. And that’s assuming they even need to at all,” said one executive. 

Trade unions too can thrive in inflationary environments as members come to depend on their ability to negotiate higher pay during annual rounds of wage bargaining — a practice which persists in few places outside Argentina. 

Given the deeply ingrained culture surrounding inflation in the country, Mr Macri is calculating that he has breathing room to concentrate on reviving economic growth while putting the battle against inflation on the back burner, given that economists expect a technical recession in the second and third quarters of 2018. 

Not only is the economy being hit by the contractionary effects of the devaluation, but the farming powerhouse has also suffered the worst drought in decades this year. Furthermore, the extra cuts to the fiscal deficit that the government pledged in order to secure a $50bn loan from the International Monetary Fund last month are likely to stunt growth. 

“The government is focusing on surviving electorally and at the same time salvaging what it can of its economic normalisation programme, leaving the problem of inflation to one side for now,” argued Mr Novaro. Most expected Mr Macri to easily win presidential elections next year until the rout on the peso that began in late April began to dent his popularity. 

His credibility as a competent economic manager has also been damaged, and he has been accused of trying to solve too many economic problems at once.

“Why should [tackling inflation] be difficult? No, no, no, inflation is just proof of your inability to govern,” Mr Macri told a journalist on the campaign trail three years ago, dismissing the suggestion that it might be a challenge. “In my presidency, inflation is not going to be an issue.”

Things turned out differently. Although Mr Macri made some progress in bringing down inflation from 40 per cent in 2016 to 25 per cent in 2017, most economists expect it to tick back up again this year. 

“It’s disappointing,” admitted Eugenia Campos, a shop assistant who voted for Mr Macri and will do so again next year. “It’s no use going back to what we had before — after all, that lot [the administration of Cristina Fernández de Kirchner] is responsible for this mess.”



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