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Inflation in Argentina: Too much garbage under the rug

I have no carpets in my house, but although I understand that it is wrong to sweep the garbage under the rug, it is understandable that some people do when they are views sudden and no time to clean. The problem occurs when it becomes a common habit to hide when trash is increasing day by day. The carpet begins to show noticeable deformities odors and long ...

But "changing the subject" and going to the issue of inflation in Argentina, many readers had asked me how are you: What is the real inflation in Argentina? How did the current situation? What are your true costs? How can I reverse the situation? In this article I will answer and close with one that worries me: Is the government willing to assume the costs of a potential sincerity of inflation?

On your first question, I do not want to risk giving a number, but I am sure that the actual inflation exceeds 20%. Only myself to respond to what I asked, that the infer through the various signals of the economy such as through the development of inter-collection of VAT (Value Added Tax) or through increases salary being agreed in the negotiations being carried out (the actual increases above 20%).

The problem of inflation in Argentina is now much more serious than it initially might think. Most regrettable is that the current situation stems from a simple "mistake" of economic policy combined with an attitude of denial. When inflationary pressures began to emerge in the economy, back in late 2005 and while Lavagna began his feud with the Kirchner (and magically forgotten today) it was decided to use the price agreements.

The price agreements are not bad in themselves, the issue is not solved the inflation problem but only give a little time for taking action. But the government thought, naively, that price agreements were the solution (clearly not, and that they could have read the books in basic economics) and that is why almost all that was used against inflation.

Naturally and as expected, inflation overwhelmed price agreements and continued its dynamic growth, without hindrance by the economic policy (which on the contrary, feeding). That's when the government wanted to hide the truth again and he had an even more ridiculous idea that the price agreements: the manipulation of the INDEC statistics.

With the real hidden inflation and increased pressure on producers of basic goods and services, the offer was not encouraged to grow and inflation accelerated its dynamics with the addition of the emergence of shortages of basic goods and more distortions of relative prices.

So we reached the current situation, where the original problem of inflation have added some more: indicators that deviate from the true value of inflation, relative price distortions, disincentives to investment and supply growth added. The problem that arises here is that solving these problems, involves a series of short-term costs that the government of Cristina might not be willing to assume. First impressions make there is not much willingness to do so.

The first task at hand is to fix the "thermometer" of inflation, but does not appear to advance along the track. More than three months after the inauguration of Cristina, it is unclear when it debuted the new index (actually it was not necessary because a new index was in line with international practice. Only the basket had to be adjusted according to the survey Household expenditure made during 2004-2005). May be ready in April, maybe May. The worst of it is that there is no guarantee that the new index clearly reflects the reality of prices in Argentina. There are many doubts and questions such as: Will the Argentine government prepared to reflect inflation above 20% when currently recognizes less than half? Will the Argentine government prepared to assume such a cost in terms of debt service that would entail? And if you're willing to do this: How will you meet the payment of such debt service with a closed capital market for Argentina?

But assuming that progress in improving the measurement of inflation, the second aspect that must address the Argentine government is to thwart price agreements so allow relative prices will mend the economy.

Already a good indicator of inflation and prices without distortion, you can go for the real causes of inflation in order to attack from the outset.

The first thing government should do is to make fiscal policy and monetary policy do their part in the fight against inflation. Fiscal policy needs to strengthen its surplus and keeping a lid on spending growth, while monetary policy should keep under control the growth of monetary aggregates. Clearly too, would have to generate policies that stimulate aggregate supply, which are clear and stable over time, creating institutional stability. Of course we should not overlook the energy problem because it directly affects the capacity expansion of aggregate supply. Clearly, the task is not easy.

With all this list what I intend to make is that, in my opinion, that in Argentina you can get back on track the inflation problem, the government of Cristina must yield on many fronts and generate almost radical change in policy. I'm not stupid and know that the odds are that this is so low (and declining as time passes because the costs increase).

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