Sunday 2 April 2023

Argentina’s rampant inflation: Will price caps work?

The government in Buenos Aires has imposed price caps on many goods to rein in runaway inflation. While the curbs are welcomed among low income locals, economists doubt they will remedy the country's persistent problem.

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Q24N (DW) At a supermarket on the Avenida Cordoba in Buenos Aires, blue-and-white signs reading “precios justos,” or “fair prices,” are attached to a number of products, showing shoppers that the retail outlet abides by a recent government-mandated curb on ever-rising prices in the country.

As the left-leaning government of President Alberto Fernandez is trying to get a grip on Argentina’s runaway inflation, prices for selected everyday products may only rise by a maximum of 3.2% per month between February 1 and June 30.

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In December 2022 alone, the inflation rate in the South American country shot up by a staggering 94.8% compared to the same month of the previous year, worsening a cost-of-living crisis in which prices are rising much faster than ordinary people’s wages and salaries.

Socialist price controls versus free-market enterprise

In the run-up to the price curbs, the government has been touting its policy as “a solution to the economic crisis,” running ad campaigns on cabs, television, and radio. Activist volunteers from his left-wing Peronist faction in government monitor prices in supermarkets to keep an eye on things at a local level.

“This is a program aimed at reducing inflation and achieving price stability in order to restore the population’s purchasing power,” Fernandez said as he unveiled the program last year amid mounting pressure on his government to halt inflation, and dwindling popularity in the population at large.

Shoppers hope the ‘fair price’ promises will slow down raging inflation. Image: Tobias Käufer/DW

Lars-Andre Richter is observing the experiment for Germany’s liberal Friedrich Naumann Foundation in Buenos Aires. The price controls are problematic, he says, because of their “market-distorting effect.”

“In Argentina, the government wants to counter inflation. That’s like trying to dam a raging river with a few pebbles,” he told DW. “Officially, the blame for the high inflation rate is being placed on the producers and their allegedly speculative tendencies. That is a clear distortion of the facts.”

Instead, Richter blames government money printing for high inflation, as the central bank is printing pesos “virtually around the clock.” Moreover, the government’s branding of the policy as ensuring “fair prices” is also misleading and a “moral exaggeration of wrong economic policy,” he said.

A drop in the ocean that will fail

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In the poor neighborhoods of Buenos Aires, where the inhabitants often lack even the basic means of life such as safe drinking water, Argentina’s persistent inflation problem is wreaking havoc on livelihoods.

Padre “Paco” Oliveira, a Catholic priest who caters to the needs of the poor, thinks the government price curbs do not go far enough. “A fair price is an agreement with companies so that they do not increase the prices of certain products beyond the agreed level. But that is far from enough. People must receive wages that are above inflation,” he told DW.

Agustin Etchebarne from Libertad y Progreso (Freedom and Progress), a nonprofit public policy research center, is also critical of the government measures. He argues that the price controls cannot work.

“If a price is set below the free market price, you distort the signals and ask producers to produce less and consumers to consume more,” he told DW, adding that this would lead to “shortages and empty supermarket shelves.”

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Once prices are freed again, he fears that those which go up the most will, of course, be “the ones that were controlled.” As a result, Etchebarne expects that the fair price strategy will fail, like many other such attempts that have been undertaken “all over the world in the last 4,000 years.”

Argentina will be no exception, he said, only that here they will “always end in social unrest and hyperinflation.”

This article was originally published by in German.

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Q Costa Rica
Reports by QCR staff

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