Rocketing Prices Confound an Argentina Racked by Inflation
BUENOS AIRES —
Diego Gómez scurried around the food market, a labyrinth of bustling stalls in a gritty neighborhood far from the elegant avenues of central Buenos Aires. He did not stay long.
“My salary isn’t enough for anything,” said Mr. Gómez, 58, a blacksmith and father of four who earns less than $800 a month. After a few modest purchases, he left the market and headed home.
“It’s unfair that we suffer,” he added, referring to the increase in prices that followed a 19 percent devaluation in January of Argentina’s currency, the peso, which sent shock waves through emerging markets.
Mr. Gómez’s situation is common in Argentina as residents grapple with one of the world’s highest inflation rates, tilling the ground for social unrest, including a strike by schoolteachers and police sit-ins that led to widespread looting.
“Society is fragile; everything is hanging by a thread,” said Carlos F. De Angelis, a sociologist at the University of Buenos Aires who specializes in public opinion. “Inflation is the No. 1 concern.”
Argentines endured price rises of nearly 30 percent last year, according to an unofficial index published by opposition politicians; the government, which has been accused of manipulating economic data in the past, claims inflation reached only 10.9 percent in 2013. In 2014, inflation could accelerate to 45 percent, according to a recent report by J. P. Morgan in New York, approaching the annual rate of 56 percent in Venezuela, a regional ally experiencing social unrest.
The price increases have become a wearying feature of daily life. One butcher’s store abandoned its price boards last month, improvising instead with a scrap of paper that cashiers updated daily. Women are taking their former spouses to court as they seek increases in alimony payments. Business owners wrestle with salary demands, and news channels periodically send out reporters to buy groceries with 100 pesos, about $12.70, so they can gauge the weakening buying power of the country’s highest-denomination bill.
People fume in the streets about the price of everything from cakes to refrigerators. Cafe owners complain that customers order less food. Wholesalers and store owners, fearful that the peso will slump further and erode profits, struggle to price imported goods.
“You don’t know whether you’ve won or you’ve lost,” said Silvio Fernández, 67, who owns a small downtown hardware store. “I’m hanging in, for now.”
Inflation has even struck the informal sector. In one northern city, an extortion racket has doubled the fee of its so-called protection service over the past year, one resident said.
Salary increases have blunted inflation and fueled domestic consumption, including record sales of new cars last year. But real wages are now expected to drop, leading one prominent opposition figure to compare them to “water running through your fingers.”
Government officials are chastised by news organizations for seldom broaching the issue of high inflation. For years, the national statistics institute published a rate that few believed truthful, provoking rarecensure from the International Monetary Fund. As part of a multipronged effort to repair its international image, the government recently released a revised index that put inflation at 3.7 percent for January alone. Unofficial calculations estimate an even higher rate for February.
With inflation soaring, the government has pressed ahead with a new round of price freezes on items like vegetables, meat, canned food and even some school materials. Billboards that hulk over highways and ads that adorn bus stops encourage Argentines to call a hotline to denounce stores that do not respect the freezes, or fail to stock the goods. They are subsequently fined or shut down.
“We have to monitor prices,” President Cristina Fernández de Kirchner told thousands of supporters gathered outside Congress this month. “Don’t let them rob you,” she said, referring to what she and her ministers view as a coterie of rapacious businessmen.
In the crowd, Lucía Martínez, 60, a nephrologist, said the price increases were disproportionate and equated them to an “undercover coup” against the government. Posters from a pro-government organization singled out business executives, including the head of the Argentine subsidiary of the oil giant Royal Dutch Shell, accusing them of theft.
“They’re toasting with Champagne while the people become divided,” said Sandra Bustos, 50, who runs a market stall.
Price controls have gained some popular support here. Two engineering students even designed a cellphone application that allows shoppers to check whether supermarkets are complying.
“It’s good that we can have prices that are not set whimsically,” said Patricia Romero, 30, who sells cellphone plans, as she picked up a four-pack of frozen hamburgers listed under the price freeze one recent evening.
But Argentines disillusioned with the government believe the controls are a symptom of haphazard policymaking that fails to tackle the causes of inflation.
“The campaign is useless,” said one man who gave his name only as José, 77, a retired accountant. “It’s a rule that’s older than the world. If you print money, there’s inflation.”
Monetary supply increased by 25 percent in 2013, according to the president of the central bank, which funds the government’s budget deficit.
Axel Kicillof, Mrs. Kirchner’s flamboyant economy minister who as a university professor analyzed economic theories through a Marxist lens, has in the past played down the correlation between monetary expansion and inflation, and he has criticized the view that Latin American governments should use inflation rates to gauge economic success.
Mr. Kicillof also accuses the news media of stoking fear of unchecked inflation. In recent comments broadcast by a radio station, he said journalists were waiting “to sound the trumpets of the apocalypse.”
Argentina has long been plagued by cycles of inflation, starting with price increases provoked by influential British merchants soon after Spanish colonialists were ousted in 1810. More recently, the financial crisis of 2001-2 set off political upheaval, devaluation and inflation. A decade earlier, hyperinflation set off looting and forced President Raúl Alfonsín to hand over the presidency earlier than scheduled.
“People have lived through so many inflationary processes that an escalation in prices is not just economic, but sociological,” said Carlos Germano, a political analyst.
Many Argentines harbor sullen resignation about the final two years of Mrs. Kirchner’s government.
“Crises are routine,” said Hugo Fahler, 57, who installs air-conditioning units, as he shopped for cheese at the food market. Mr. Fahler says he now charges nearly twice as much as before the devaluation because the cost of some materials has jumped by 160 percent. “This reminds me of Alfonsín. The next government is going to have a real mess on its hands.”
The central bank has recently increased interest rates to prevent the hemorrhaging of dollar reserves, a move that it hopes will also help tame inflation. But the government appears to lack a long-term strategy to confront price rises.
“At the moment, there’s no institutional framework to guide inflationary expectations,” said Vladimir Werning, an economist at J. P. Morgan.
Observers say that Mrs. Kirchner has been forced into decisions she was ideologically opposed to — like raising rates and the devaluation — to maintain social calm and protect the legacy of her political model, especially after Argentines gave momentum to opposition figures in midterm elections last October.
“The government wants to avoid a disastrous exit; it’s patching things up to ensure any economic or institutional bombs detonate after Dec. 10,” said Gastón Rossi, a former deputy economy minister under Mrs. Kirchner, referring to the date in 2015 when her term ends.
But some fear it is an impossible task.
“This is like a pressure cooker,” said Claudia Bonilla, 54, the owner of a downtown stationery store whose costs are rising and sales falling. “I’m scared it’s going to explode.”
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