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Montevideo, November 28th 2020 - 03:07 UTC

 

 

Argentine inflation in February, 3.8% and 51% in twelve months; central bank new measures

Friday, March 15th 2019 - 08:48 UTC
Full article 32 comments

Argentina’s stubbornly high inflation accelerated again in February, the government said on Thursday, sparking the central bank chief to pledge new measures to rein in rising prices that have dogged the South American economy over the last year. Read full article

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  • Jonaz_BsAs

    What a nation of losers - lmao

    Mar 15th, 2019 - 05:12 pm - Link - Report abuse -1
  • bushpilot

    Wiki-

    “there is now broad agreement among economists that in the long run, the inflation rate is essentially dependent on the growth rate of money supply relative to the growth of the economy.”

    What is the problem in Argentina?

    Is it very little economic growth compared to the supply of money?

    (I know, I know, it's Macri. Unless it's a socialist in charge, in which case we can ignore inflation, 'cause nothing is as important as socialism, the true religion)

    In Venezuela with an annual inflation of 838, 000%, a zero level of economic growth might explain this infinite inflation rate.

    Because, no matter the supply of money, any number divided by 0 equals infinity.

    Is it not so much the supply of money as consistently low to no economic growth?

    What is it about this culture? (I know, I know, it's not the Argentines, it's Macri)

    I'd be afraid if this country just went to the dollar (dollarized). They might just wipe out the whole global economy.

    Mar 15th, 2019 - 11:39 pm - Link - Report abuse 0
  • Enrique Massot

    Many MP commentators were enthused three years ago when Mauricio Macri won the 2015 presidential election. Finally a market-friendly guy after those pesky populists!

    Now they are all disenchanted and gone -- all but Jonaz and bushpilot, who now find nobody else to blame for the current disaster -- nobody but “the Argentines,” who Jonaz calls “a nation of losers.”

    I would say the only loser here is that who is unable to see past his prejudices and utterly unable to understand the real world.

    This is class warfare, people, the Argentine oligarchy doing what it does best: a giant effort to sink the poor, the middle class and even some of the well offs who don't belong to the “red circle.” Inflation is the best instrument to operate a transfer of wealth, from the working Argentines to the pockets of a few: Large landowners, banks and financial institutions, privatized energy companies, and highway toll operators.

    Mar 16th, 2019 - 05:40 am - Link - Report abuse 0
  • Think

    I fully subscribe to yours above..., Sr. Massot...
    As yourself..., I am a humble white sheep somehow related to a rich flock of black ones...
    Therefoe..., I can vouch fo the fact that those Argie 1%ters haven't had better times since 1913...

    Mar 16th, 2019 - 08:38 am - Link - Report abuse -1
  • bushpilot

    Was the bad inflation rate under CFK also class warfare then?

    Mar 16th, 2019 - 04:29 pm - Link - Report abuse 0
  • Think

    Anglo Turnip just above...

    Nope..., because salaries..., pensions and each and every social benefit were always incremented a tad over the inflation rate...

    A simple example for a simple Anglo Turnip...:
    - In 2001..., a couple of years before the Kirchners..., the minimum pension was ~110 U$D...
    - In 2013..., ten years into the Kirchner period..., , the minimum pension was ~560 U$D...
    - Today... in 2019..., in the fourth year of Macri..., , the minimum pension is ~220 U$D...
    + a ~500% increment in electicity, gas, water and transport bills + no more free medicines for Ye Auld Ones...

    Capisce...?

    Mar 16th, 2019 - 07:13 pm - Link - Report abuse -1
  • bushpilot

    You've demonstrated that high inflation under CFK was not class subjugation, but with Macri, it is.

    But I was asking how that high inflation in Argentina is caused.

    You differentiate between the high inflation caused during CFK, and that caused during Macri. Let me ask my question again this way:

    What caused high inflation in Argentina during the CFK administration?
    What caused high inflation in Argentina during the Macri administration?
    Does it have anything to do with money supply or limited economic growth?

    Mar 16th, 2019 - 07:35 pm - Link - Report abuse 0
  • Think

    Enough Turnip for now...

    Mar 16th, 2019 - 07:43 pm - Link - Report abuse -2
  • Jonaz_BsAs

    Believing that inflation isn't a direct result of money supply in 2019 is like believing that blood letting can cure cancer, tuberculosis or any other serious illness, which, in fact was the commonly believed school of “thought” in past centuries.

    The faculty for economical sciences at UBA is responsible for much of the perverted economic (mis)management in this Argentina (see Axel Kiciloff). The incompetence and arrogance is of astonishing calibre. Like having a medical faculty that insists that smoking is healthy. Go figure.

    Mar 16th, 2019 - 08:53 pm - Link - Report abuse 0
  • DemonTree

    Summary of main causes of inflation

    1. Demand-pull inflation – aggregate demand growing faster than aggregate supply (growth too rapid)
    2. Cost-push inflation – higher oil prices feeding through into higher costs
    3. Devaluation – increasing cost of imported goods, also boost to domestic demand
    4. Rising wages – higher wages increase firms costs and increase consumers’ disposable income to spend more.
    5. Expectations of inflation – causes workers to demand wage increases and firms to push up prices.

    HTH.

    Mar 17th, 2019 - 11:29 am - Link - Report abuse +1
  • Jonaz_BsAs

    And here we go, the utterly clueless UBA school of “thought” about inflation.

    1) Supply in a free market will meet demand as long as there's no resource scarcity involved, in which case the economical activity will decrease until there's an alternative resource readily available. No inflation would ever come from increased demand unless the money supply is increased. People will simply not be able to afford the goods or services.

    2) Increased price of a scarce resource, such as oil, will lead to higher oil prices in real terms
    that again will increase the exploration rate thus bringing the oil price down if there's more
    oil to be found. Other sources of energy production will experience increased investments
    and consumers - due to the substitution effect - will use public transport, walk, bicycle etc. No inflation from this at all unless money supply is increased.

    3) A devaluation is essentially the same as increasing the money supply, unless you refer to the hapless “oficial” devaluation, where authorities defines a currency price, thus incentivising the black market currency exchange where the true value of the currency is interchanged.

    4) Rising wages that is not based on increased productivity leads to inflation because then the
    authorities are forced to emit more money, exactly like what has been going on in
    Argentina since at least 2007.

    5. Increased money supply leads to expectation of inflationary, NOT the other way around. Your explanation is a kin to insisting that “the tail is wagging the dog”

    It is empirically proven (unless you are a 19th century dweller aka the faculty for economic sciences @ UBA) that inflation is ONLY a result of monetary policy - on average the correlation is above than 0.99.

    Mar 17th, 2019 - 07:03 pm - Link - Report abuse 0
  • DemonTree

    So UBA school of thought about inflation = every other economist school of thought about inflation. What a surprise.

    Also, devaluation is not (necessarily) caused by monetary policy, so it's obvious that that is not the ONLY cause of inflation.

    Mar 18th, 2019 - 09:15 am - Link - Report abuse 0
  • bushpilot

    DT, what does HTH stand for?

    Those 5 points of yours do not mention printing more money, but I always thought that was the main culprit for inflation. I might be off on that.

    The way JBA sees it is:

    If a price increase is market based (supply/demand), and not monetary policy based, then it is not an inflation price increase. Therefore, without question, all inflation is based on monetary policy. (??)

    Makes some sense. It is the persistent, regular increase of all prices that most refer to as inflation, not usually the price increases that level off after awhile.

    Which of the above 5 factors is coming into play in the Argentine economy? JBA singles out #4. Entrenched expectations of inflation (#5) coupled with automatic increases regardless of productivity (#4) seems a pretty good explanation too.

    Maybe it is just too much dead weight, that votes. And these dead weight voters are beyond a critical mass in the voting system that leads to monetary policy crashing the economy.

    EM says it is the slave mentality of the elite (and not the mass coveting of another's wealth).

    Or, it could be based on turnips I suppose.

    Maybe the Argentine system just works at 24-51% inflation. And life goes on.

    But if one is not part of an automatic income increase program at 51%, one is screwed in only a year.

    Any money for savings needs to be converted to something else right away, I'd guess.

    Mar 18th, 2019 - 05:25 pm - Link - Report abuse 0
  • DemonTree

    @Bushpilot
    HTH = hope that helps.

    ”If a price increase is market based (supply/demand), and not monetary policy based, then it is not an inflation price increase. Therefore, without question, all inflation is based on monetary policy. (??)“

    Well, if you define inflation caused by things other than monetary policy to not be inflation, then sure! But whatever the cause the result is the cost of living rising for ordinary people.

    I'm not an economist, but from what I've heard, Macri's cuts to fuel subsidies were a significant contributor to inflation. Both directly and through higher costs to manufacturers. Guess that would be type 2. More recently, the devaluation of the peso probably didn't help.

    I don't know too much about the economy under CFK, but at a guess rising wages might well have contributed. If you want to see a textbook case of number 5, the self fulfilling prophecy of expectations of inflation leading to inflation, read about Brazil before the Plano Real. Not sure how much this cause has affected Argentina, though.

    Macri thought like JBA; before he was elected he said inflation was the easiest thing in the world to solve - just print less money. But he's had to eat his words.

    ”Maybe the Argentine system just works at 24-51% inflation. And life goes on.”

    JB told me about living in Brazil with inflation over 1000%. Wages were raised every month based on last month's inflation, and all income was spent immediately before prices rose further. Savings accounts were indexed to inflation, but it was still a losing proposition for most people. Planning for the future, for both individuals and business owners, was almost impossible.

    Don't forget that during the 2001 crisis in Argentina, the government stopped people withdrawing their own money from banks and forcibly converted it all from dollars to pesos, which then rapidly depreciated. Would you trust them with your money now?

    Mar 18th, 2019 - 06:41 pm - Link - Report abuse 0
  • Jonaz_BsAs

    @DT
    “So UBA school of thought about inflation = every other economist school of thought about inflation. What a surprise.”

    You won't find ANY serious economist outside Venezuela, Zimbabwe or Argentina that would deny that inflation ONLY and UNIQUELY is a result of monetary expansion. Depressingly, the confusion regarding inflation is at the very heart of the Argentine tragedy; that a national educational institution has been hijacked by political operatives who, disguised as “scientists”, argue otherwise is painful to witness.

    The mathematical correlation between monetary expansion and inflation has been empirically proven, time and again, to be above 0.99. What the hell do you need to know beyond this very fact?

    It's human to err and I do truly respect people who has strongly believed one thing and then - based on empiric data - are big enough to admit they were mistaken. It can happen to any of us. Of course, from intellectually entrenched dwarfs such as Kiciloff & Co I have no hope of such a mea culpa. Anyway, it must be hard to admit to the world that, 'oops - I seem to have screwed up the lives of some 45 million people - sorry'.

    One day Argentina will come to her senses and understand the horrendous error she's consistently been making with regards to inflation. May that day come soon!

    Mar 18th, 2019 - 07:19 pm - Link - Report abuse 0
  • bushpilot

    Printing less money may be the answer. But the electorate doesn't tolerate it.

    DT,
    Your HTH post did help. Your last post too.

    Looking up Plano Real also led me to these wiki articles:

    Hyperinflation
    Inertial Inflation
    Money Supply

    Thanks much. It isn't simple.

    JBA,

    (“intellectually entrenched dwarf” - love it!)

    Kicillof was a heterodox quack but he was gone years ago. Now, 51%. Are Macri's people thinking the same way?

    Is Macri borrowing too much, or printing too much? I would think his people are trying to limit the money supply. Am I wrong?

    Mar 18th, 2019 - 08:48 pm - Link - Report abuse 0
  • DemonTree

    @JBA
    “It's human to err and I do truly respect people who has strongly believed one thing and then - based on empiric data - are big enough to admit they were mistaken.”

    Why don't you show us this empirical data, then? Studies showing the correlation between monetary expansion and inflation, and some links to economists saying inflation is ONLY and UNIQUELY the result of monetary expansion. (Though even that would not prove that ALL economists agree.)

    @bushpilot
    High inflation is bad for everyone and causes a lot of problems, but pulling money out of the economy too suddenly/drastically is likely to lead to recession. At that point voters may well think inflation was the lesser evil. There's no simple solution when fixing one problem causes 2 new ones.

    Mar 19th, 2019 - 09:27 am - Link - Report abuse 0
  • Jonaz_BsAs

    Check this link for inflation vs money supply in a comparable country (Australia - commodity driven economy with huge land masses per capita):

    http://www.buoyanteconomies.com/AustInflation.htm

    Of course, in a country where the citizens live in complete and utter denial, it's a hard political sell “getting off” the inflation addiction. However, it is what Macri should've announced during his first week in office. The price will be paid eventually anyway, and the longer you wait, the harder it gets. Just wait and see, 2020/2021 is when the real shit with hit the fan.

    Mar 19th, 2019 - 03:52 pm - Link - Report abuse 0
  • bushpilot

    Maybe it is better to have the only one problem of 25% inflation for 20 years, and running.

    Mar 19th, 2019 - 04:59 pm - Link - Report abuse 0
  • Jonaz_BsAs

    No, that's a very bad idea:

    Consistent inflation above 20% is on average shown to shave off 1.5-2.0% of GDP growth a year, which over the timespan of a generation will lessen the growth of some 50% compared to well performing economies; or, if you will, Argentina's economical development in a nutshell compared to US or Europe.

    Besides, inflation is always hitting the poor the hardest. Why? Because the newly printed money will propagate throughout the economy in the following way:

    BCRA -> banks -> big companies, financial institutions -> small companies (PYMES) -> workers -> poor, unemployed.

    For each step, money will lose significant value thus hurting everyone after the banks, and in an increasing fashion. Think of it as concentric circles around pebbles thrown into water.

    Inflation is in fact a brutal tax on the poor by the rich and the fact that self declared socialists willingly are generating inflation is an irony so perverse it's hard to grasp. Inflation is indeed Reverse Robin Hood.

    Besides, inflation creates big distortions in the economy; by giving tremendous power to big unions who will argue that “they fight for the workers”, except they do only fight for their own workers at the cost of weaker unions or self/under/un-employed.

    Inflation is a toxic cloud, destroying human development. It should never be accepted by any society.

    Mar 19th, 2019 - 08:17 pm - Link - Report abuse 0
  • DemonTree

    @bushpilot
    I wasn't saying that. High inflation needs to be tackled, but it's not a trivial problem and you can't blame voters for objecting to lower wages and pensions, especially when it doesn't work to lower inflation as in this case.

    @JBA
    Interesting site, and he may be right, but it doesn't seem to reflect mainstream thinking. So many rich countries still have problems with growing national debt.

    I'd be interested to know if you think inflation is also a tax on the poor in the US and other countries that deliberately keep it somewhere above zero. Would you prefer to go back to the gold standard, perhaps?

    Mar 20th, 2019 - 09:10 am - Link - Report abuse 0
  • Jonaz_BsAs

    No, and that's why US and Europe prosper; because there's a reasonable money policy in place. Inflation should roughly track real growth and no less; you don't want to risk deflation either. 2-4% seem to fit most developed countries.

    Mar 20th, 2019 - 08:31 pm - Link - Report abuse 0
  • Think

    Mr. DemonTree...

    Please keep in mind when discussing Economics with Besserwisser posters in here that Economics is a “SOCIAL” science..., not an “EXACT” one...

    The Anglo Turnip above declares quite haughtily that...:
    ***“ It is empirically proven... that inflation is ONLY a result of monetary policy - on average the correlation is above than 0.99 ”***

    O'Really...? says humble me...
    Sipping some glacier water from me beloved Edo period Hagi Chawan..., it occurs to me to Think about me time in Nihon...
    Since then... (decades ago)..., Japan has been emmiting Yens at an astonishing rate....
    Increasing their monetary base between 10 to 25% YEARLY...!
    Following Turnip Jonaz-BsAs false DOGMA..., me dear Nippon should have one of the highest INFLATION rates in this World...
    Following reality though..., Nippon has had DEFLATION the last many..., many years...
    An “ODDITY” worth to be taken into account...
    Specially when the Japs percentage of the World's GDP is around 8%...
    Don't you Think...?

    Mar 21st, 2019 - 09:34 am - Link - Report abuse 0
  • DemonTree

    @Think
    I'm not an expert in economics, but I do know enough not to buy JBAs claim that all economists agree... about anything.

    Seems to me that if he was right then inflation should be zero as long as growth in money supply exactly tracked real growth.

    I didn't know that about Japan, though. I wonder what is causing the deflation?

    Mar 21st, 2019 - 04:06 pm - Link - Report abuse 0
  • Think

    .................................................................................................................................... the Japanese...

    Mar 21st, 2019 - 04:56 pm - Link - Report abuse 0
  • Jonaz_BsAs

    Well, you presented your straw man and knocked him over; Japan, the father of all straw men. There's even a famous joke among economists regarding Argentina and Japan and how both of them behaves differently from everyone else, but certainly not mutually. In fact, Japan is very much Argentina's economical management diametrical opposite. The two countries put together are thereby a bad fit for comparison. Japan's low inflation can be easily explained, though:

    Japanese people, on average, display tremendous loyalty to their gov'ts (too much?) so they lend money very cheap to the central bank, by accepting the low yield in yen denominated pension fund bonds, thus supporting their country in detriment to their own, personal economical well being. Hence, newly emitted M0->M4 currency is picked up by bonds and never gets to circulate. Thus no inflation. In Argentina, this effect is the exact opposite: That people are shying away from the peso - just look at the suicidal rate on LELIC - and then buying dollars; They've been burned one too many times already, which is partly why the peso is paying a steep price right now - it has a pathetic history. Survival is in US dollars.

    I never said this effect was modus ponens; that increase in money supply _always_ leads to inflation; what I said - and the distinction is very important - is that all inflation comes from increase in money supply. Similar to that (almost) all lung cancer ill are smokers but not all smokers get lung cancer. Ok?

    Mar 21st, 2019 - 07:27 pm - Link - Report abuse 0
  • Think

    You talking to me..., Turnip...?
    https://m.youtube.com/watch?v=LpJOxbaC8YU

    Mar 21st, 2019 - 07:42 pm - Link - Report abuse 0
  • DemonTree

    @JBA
    Personally, I'd say Japan and Argentina being exceptions to the rule tends to indicate the rules are wrong.

    That's not what modus ponens means, but I understand what you're saying. However, those nice graphs showing inflation tracking money supply can only be correct if the implication goes both ways. Presumably the same graph for Japan would not show the same correlation.

    Not being an economist, I decided to look up the basics, and found this:

    https://www.investopedia.com/articles/investing/022615/why-didnt-quantitative-easing-lead-hyperinflation.asp

    “Hyperinflation is an exponential rise in prices and tends to occur not when countries print too much money, but is instead associated with a collapse in the real underlying economy.”

    Seems to be true of Argentina (to a lesser extent) and Venezuela, as well as Weimar Germany. Perhaps it was written by an Argentine economist? ;)

    Mar 21st, 2019 - 09:28 pm - Link - Report abuse 0
  • bushpilot

    JBA

    If inflation in Argentina is at 51%, you are saying its cause is too much money supply vs. economic growth. Is that right?

    Most economists would first look in this direction. What do most economists say about Argentina and Macri and its hyperinflation? Where is it coming from?

    Why was there strong inflation under CFK? Why is there strong inflation under Macri?

    If the Argentine bank is printing too much money, why is it also borrowing a lot of money?

    Mar 21st, 2019 - 09:30 pm - Link - Report abuse 0
  • Jonaz_BsAs

    Yes, indeed. There's no doubt about this. Don't forget to include future money (LELICs)
    Real economists, such as Espert, Milei, Cachanosky etc say clearly yes. Crazy ones, like Kiciloff, says no. The answer is in. Kiciloff was wrong.

    There's a huge money overhang from earlier expansion and LELIQs promise more supply expansion.

    Strong inflation under CFK; insane attempt from the UBA school up thought - trying to increase growth by pumping out money, “stimulating” demand side.
    Macri was never able to cut public waste which is now “financed” by leliqs, mostly. Before that with lebacs. money printing has been going on the entire time.

    Because influx of USD, both financial and from export, collapsed - which was predictable.

    No more time for this. Have the last word, I'm out.

    Mar 21st, 2019 - 10:57 pm - Link - Report abuse 0
  • Think

    TWIMC

    The Turnip above just threw a juicy bone..., this auld Patagonian dog couldn't resist...
    He said...:
    - ***“ Strong inflation under CFK; insane attempt from the UBA school up thought - trying to increase growth by pumping out money, “stimulating” demand side.”***

    Welll... that's exactly what PORTUGAL (Little country of Europe..., member of the European Union...btw...) has been doing the last years..., and it works...:
    https://www.nytimes.com/2018/07/22/business/portugal-economy-austerity.html

    (I used the New York Times as a source..., not because I respect it..., but because I diddn' want having that rambling Turnip above accusing Pennsylvania..., Stanford or Yale universities to beeing part of the ***“UBAschool of thought”***..., capisce...?)

    Mar 22nd, 2019 - 05:45 am - Link - Report abuse 0
  • DemonTree

    I wish our government had done the same as Portugal.

    “Macri was never able to cut public waste which is now “financed” by leliqs, mostly.”

    It can't be simply the budget deficit/borrowing that's causing inflation in Argentina; Brazil has a bigger deficit and has seen inflation fall.

    @bushpilot
    This seems to be the 'mainstream' view of Argentina's inflation problem:

    https://www.bloomberg.com/news/articles/2019-02-26/policy-clash-makes-argentina-its-own-worst-enemy-on-inflation

    Mar 22nd, 2019 - 10:31 am - Link - Report abuse 0

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