March inflation in Argentina was the highest in twenty years, fueling expectations that the index could hit 60% annually or even stay above 70%.
The March result (6.7%) helped to accelerate the comparison with Venezuela, which until then had been the absolute leader and by a large margin in the inflation rankings in Latin America.
A day after Indec (National Institute for Statistics and Census) published official inflation, IMF (International Monetary Fund) Director of Strategy Ceyla Pazarbasioglu said on Thursday (14) that “inflation must be domesticated”. because it “paralyzes” the economy and hits the poorest.
But why is Argentina’s inflation identified as the highest in the region, or at least on the way there, in some sectors? And what say Venezuelans living in Venezuela and Argentina?
BBC News Brasil has interviewed economists and residents in Argentina and Venezuela, where they say the price collapse is notorious but the quality of life is still very complicated.
Argentina started this year with price increases that began even before the Russian invasion of Ukraine, which impacted the global economy and put pressure on inflation in several countries.
According to official data, Argentina inflation was 3.9% in January, 4.7% in February and 6.7% in March.
In the first three months of this year, the index reached 16.1%.
For comparison: January inflation in Venezuela was higher than in Argentina (6.7%). But in February (2.9%) and March (1.4%), Venezuela’s index was lower than Argentina’s, according to the Central Bank of Venezuela (BCV).
In the first quarter of this year, the price increase in the Caribbean country was around 11%. That is, smaller than that of Argentina.
There are still numbers and analysis that suggest that as of 2017, Venezuela would have emerged from four consecutive years of hyperinflation, exceeding annual fourdigit or more inflation to become tripledigit or even doubledigit.
And since last September, the country has recorded monthly inflation in the single digits, according to BCV. That scenario prompted Credit Suisse to cut its inflation forecast for Venezuela from 150% to 70% in early April, also impacted by expectations of higher growth with its wartime oil sales in Ukraine, Bloomberg news agency reported.
Should the forecast of 70% annual inflation for the Venezuelan economy be confirmed and should the most pessimistic estimates for Argentina prove correct, the inflation podium would at least be even.
Venezuelan dollarization
Why should inflation in Venezuela go down?
“Venezuela has made a number of changes to its monetary policy, including using the dollar for domestic payments. Inflation in Venezuela is falling and, paradoxically, Argentina’s is rising,” said Argentine economist Marcelo Elizondo.
Caracasbased economics consultancy Ecoanalitica estimates that the dollar is used for more than 70% of general payments in the country presided over by Nicolás Maduro.
Venezuelans told the report that the bolivar, the local currency, is virtually limited to use in digital transactions.
“Today we all have more dollars in the bank than bolivars and almost no one has bolivars in their hands. But dollars and euros,” says music teacher Adriana Virguez Cruz, who lives in Venezuela.
According to economists, using the dollar and opening up the market would have been crucial in cooling aggressive and recordbreaking Venezuelan inflation.
“The government finally reduced the financing of the deficit of public companies by issuing funds without support. It reduced public spending and expected an openingup policy with imports without taxes and thus reduced costs,” former economist Victor Alvarez Minister of Industry told the Spanish newspaper El país
Why Did Argentina Inflation Rise?
Economists Gustavo Perego, a Brazilian with economic consultancy Abeceb in Buenos Aires, and Marcelo Elizondo, an Argentinian and master professor at the Instituto Tecnológico de Buenos Aires, have listened to BBC News Brasil and understand that Argentina’s inflation has put its foot on the ground Accelerator from the second half of last year, when the government increased public spending after receiving fewer votes than the opposition in the August primary and attempting to win October’s general election.
The pandemic scenario and war in Ukraine have further complicated the already difficult situation and, according to them, created “macroeconomic imbalances”.
“When public spending increases, mainly by spending money, it has no immediate impact on inflation. But over time, inflation can increase due to the amount of money that has been put into the market. And that’s what we’re seeing now,” Perego said.
Power struggles at the center of power
The Brazilian economist noted that internal disputes in the center of power, in which Vice President and former President Cristina Kirchner openly criticized the course of President Alberto Fernández’s government, also help generate negative expectations and price discounts.
“The struggle inside the government is growing between the radicalized wing of Kirchnerism and the more moderate wing of, say, the President.”
For Perego from Abeceb, spending along with political uncertainties are the “serious reasons” for Argentina’s acceleration in inflation.
“If you try to think of a logic of economic policy that has strong pillars, you realize that there is no political structure (for an economic course and the fight against inflation),” he said.
He recalled that Argentina has just signed an agreement with the International Monetary Fund (IMF) to pay off a debt of around $44 billion incurred during the previous government of Mauricio Macri, and that the agreement includes adjustments to public service tariffs provides.
According to Argentinian economist Elizondo, tariff adjustments, which the government could use to reduce spending on tariff subsidies, should further boost inflation.
The two understand that the fact that Argentina is a wheat exporter, affected by the war in Ukraine and dependent on gas imports, also affected by the war scenario, has pushed up the prices of food and other sectors in the country.
Latin America vs Venezuela
Inflation is rising in several countries, including Chile and Colombia, which have not faced rising prices for years.
And in Venezuela? “The situation has definitely improved. But unemployment is still huge and visible here, as is poverty. Salaries and pensions are still miserable. As a music teacher, I survive thanks to private lessons because I no longer have a salary “It is possible to get medicine, food, fuel. But all at an international price. That is why many people still depend on the help of family and friends. If they buy medicine, they cannot buy food,” said Adriana Virguez Cruz.
Difficult life in Venezuela vs. quality of life
In the city of Buenos Aires, as in other cities in the region, many taxi drivers are Venezuelans. On Thursday evening (4/14), one of them told the report that he had just returned from the airport, where he was due to pick up a Venezuelan couple who were planning to move to the Argentine capital.
“My family, who are still in Caracas, tell me that prices have really gone down. But healthcare and all services are still a disaster. And the money is not enough to live on. Here in Argentina I’m afraid that there is so much control that they have done in my country, it’s leading to more and more inflation. Here they control the prices (from a list of groceries) and the dollar, and inflation keeps rising, but there’s a quality of life that doesn’t exist there. , said Bryan dos Santos.
“People keep leaving my country,” he said.