Thursday, July 18, 2013

Argentina: 82% Purchasing Power Lost in 10 Years

Argentina’s inflation keeps soaring. Its worth noticing some of these events because there’s a good chance we’ll see some of these being similarly implemented elsewhere to a degree, if not downright done the exact same way.

One of the many problems with statistics and numbers in Argentina is that its hard to come by reliable data since the government controls the statistics institute known as INDEC and it refuses to publish any numbers or statistics that could be perceived as a failure of the ruling party. That’s how what should be the most accurate agency often shows inflation numbers that are ten times less of what independent agencies come up with. To make matters worse those independent agencies get fined or shut down by the government if they don’t play ball.

Still, there are many ways in which people can ballpark a general idea of how bad its getting. How much of your shopping cart you fill with a given amount of money would be one of them. The price of bread, milk, those are clear indicators of the cost of basic supplies linked to the cost of living.
Another interesting thing to observe is the feeling of irrelevancy of the $100 bill.
You see, a 100USD bill is considered a big bill to break down. Buying say 10c of candy with a 100USD bill may be frowned upon by most store clerks in USA.  A 100 USD bill is still considered “big” money. 100USD buys you stuff. It buys you a pizza or meals for four in most fast food joints. 100USD is respectable money in the world of daily expenses and cash kept in wallets.

As prices keep soaring in Argentina, the 100 peso bill is seen more and used around more up to the point where lots of ordinary things bought on the average day cost 100 pesos. Its not considered “big” money any more. There’s been an increasing demand for a 500 peso bill, and this would no doubt help matters a lot, it sure would be used. But the government considers this a way of acknowledging inflation, so they refuse to make a 500 note.  So what happens? A)You have to walk around with a big fat wallet full of bills. B) The government is printing 100 peso bills like crazy.
Here’s a chart showing in red, how many 100bills are in circulation today in comparison to the last 10 years.

Wacky / Nutty facts about the Argentine Economy

*Argentina has two, hour-based prices for bread. Scratching your head? Lost in translation? Nope. Here’s the deal: A kilo of bread sells for 10 pesos before 10 AM and it doubles in price after that. Insanity? Well, yes, for most people it is. But for the Argentine government it’s a way of saying bread costs only 10 pesos, while on realistic terms the price is at least 20. Good luck finding any bread before 10 am, most bakeries just happen to “run out” and don’t restock until 10 AM, or they have two qualities of bread. The before 10 AM one probably being mostly sawdust mixed with expired flour. 

*A liter of gasoline in Argentina costs as much as a litter of the milk, about 1.49 per liter. This is for the cheapest milk you can find. Other than being white, it tastes just like water.


Anonymous said...

This is not *directly* topical to any super recent posts, but it's topical to this blog as a whole:

isn't it funny how Detroit, America's past beacon of industry, just went LITERALLY BANKRUPT and nobody cares?

"The stock market is up, why should I care about the last place in this country that actually made stuff?"

...And that's true, the stock market IS up: because US treasury bonds have a negative yield curve, so everyone who otherwise wants to be in bonds is artificially inflating the Dow Jones.

I just see a lot of really ugly things going on and a lot of people with their heads in the sand.

Greek Caste System said...

In Greece (and I think in other PIGS) we witness a different scenario:
Too many taxes and the prices FALL (deflation) because people has no money to buy.
Still, there is no problem in buying food or clothes (so their prices remain stable) but in houses, cars, vacation programs and anything that can be taken for "luxury" (like strange beer brands or elaborate furniture) every week you hear a new, lowered, offer.
Personally (I am a civil engineer) I have lowered my prices about 40-50% since 2010 despite increased taxation.
Out of control inflation or deflation the result is the same: Lower purchasing power for the people, turn to bartering economy.

Anonymous said...

I had to do the math on this, as it didnt seem as doom and gloom as it implies.
Googling the 'official' argentina inflation rate, they say its around 10%. if the 82% value drop is accurate, then that implies 16% inflation each year.
So, OK, I'd hate to live with 16% inflation, but thats hardly Zimbabwe territory. And the government claiming 10% when its really 16%.... do we really think 1st world goverments dont fudge the figures in the same ratio?(claiming 2% when its really 3%)

k said...

Whilst it ain't "Zimbabwe territory", if it persists, eventually it will enter "Zimbabwe territory".

Anonymous said...

The "Official Argentine" inflatoin rate is bogus. Even the IMF has chatised Argentina for lying about the inflation rate. It's probably much more, Any newspaper in Argentina that reports the true rate is shut down.

Just like the democrats will start doing in the US when the criticism it too to the point.

Larry said...

For comparison, the inflation rate in March of 1980 was 14.8% -and as bad as that was it was only temporary. If you have a persistent 16% inflation rate, it is much worse because there's no indication that it will decline.

From the blog:
"To make matters worse those independent agencies get fined or shut down by the government if they don’t play ball."

In 2011 S&P downgraded the U.S., and a few months later the Department of Justice opened an investigation into S&P.

Dave H said...

Poor Argentina - I am from the UK and Canada, and like most up here, we know that AR is a wonderfully interesting country... But it is so bizarre how these populist politicians do so well down there, after all Argentines voted them in. It's like Evita all over again, but evita still draws big crowds... Even in death.
I loved seeing the Paris of the South, but cannot imagine how most feel seeing some developments for the super rich, while the rest crumbles.
Yes, Detroit did go bankrupt, but North American bankruptcy does nothing but offer creditor protection, freezes the cash crab, and allows solutions to be found.
Argentina's problem is that every decade or two they do the same thing. Not once in history.
Italian genes? South American heat? What the heck does this again and again there? Argentina WAS a very rich country and no doubt could still be today. But you need to boot the populists and your teenage toyboy economics minister! The say people get the gov't they deserve, but your people should be telling yourselves they deserve much better. Venezuela is not a place to model your economy on!