MercoPress. South Atlantic News Agency

Argentina burdened by high inflation and multiple exchange rates

President Fernández is scratching the bottom of the pot to keep the country's economy running

Argentina's economy seems to have a dark future ahead, according to reports in Buenos Aires media highlighting that inflation in the first week of October alone reached 2.8 % in the price of food.

Data from private consultants quoted by Infobae showed the projected inflation for the year largely exceeded 100 %.

“The food and beverage index presented a monthly inflation of 8% average in the last 4 weeks and 8% peak to peak in the same period”, highlighted the report prepared by the consulting firm LCG based on a price survey of 8,000 products at supermarkets. The same items grew 8% on average in the last 4 weeks and 8% peak to peak in the same period.

The products with the highest weekly variation were: bakery products, cereals, and pasta (7.4%); dairy products and eggs (5.9%); vegetables (4.6%); condiments and other food products (3.7%); beverages and infusions for home consumption (3.2%); and fruits (3%).

October's first week also recorded increases in the prices of goods and services. Also going up we fuel (6%), health insurance (11.5%); water (10% in the Buenos Aires Metropolitan area - AMBA); and communications (mobile telephones - around 19%, depending on the provider).

Electricity bills also began showing a gradual reduction in subsidies for people eligible for the benefit, which is believed to be affecting some 5.9 million households in the short run regarding electricity and 4.1 million households in the case of cooking gas. Electricity will thus go up around 49% on average while the increase in cooking gas will be between 22% and 25%.

According to a survey by the Central Bank among private consulting firms, inflation for October is forecast at 6.2%, 6% for November; 6.2% for December; 6% for January; 5.9% for February, and 6% for March.

Retail inflation by the end of the year will be 100.3%, or 5.3 percentage points above previous forecasts.

The Domestic Trade Secretariat renewed the Cared-for Prices Program albeit for a smaller number of products (from 1,200 to about 450 items). It will remain in force until Jan. 7 with increases below the projected inflation.

In this scenario, the administration of President Alberto Fernández announced a new exchange rate of AR$ 300 / US$ 1 for expenditures on leisure, travel, and luxury, applicable to some 200,000 consumers with similar expenses last month. The new package of measures, which includes other quotations for other transactions, is expected not to hit streaming subscriptions such as Netflix or Spotify agreed upon in pesos, although it would impact new customers.

In financial circles, the new quotation has been dubbed “The Qatar dollar,” claiming it would only apply to people wealthy enough to travel to the football World Cup next month.

Purchases abroad U$S300 through credit cards would also be payable at the AR$ rate because a 25% Personal Property Tax will be added to the official value plus the already existing PAIS tax. The same would apply to luxury goods, while entertainment such as tickets for concerts featuring foreign players and sporting shows will trade at a rate of AR$ 195 on the dollar (AR$ 150 pesos plus 30% PAIS Tax).

The new measures seek to discourage the outflow of foreign currency. The Government has been working for weeks on a scheme to funnel the dollars available toward productivity imports.