LONDON – Why is inflation going down in Argentina? Because it went up massively late last year. Why might inflation rise again in Argentina? Because it has been falling in recent months. Those are the two main conclusions of a wonderful recent paper by two Uruguayan economists. (Want to figure out what is going on in a country or a household? Ask the neighbors.)

To understand these two apparent paradoxes, it helps to go back a little in history. The administration of President Alberto Fernández, a Peronist who governed Argentina until December 2023, ran a large fiscal deficit, owing in part to sizeable inflation-adjusted increases in pensions and public-sector wages.

Because no one would lend to Argentina, Fernández could finance the deficit only by instructing the central bank to print the necessary pesos. And to ensure that Argentines held on to the pesos instead of exchanging them for dollars, Fernández built a wall of exchange controls. The result was a massive overhang of pesos, held reluctantly under mattresses or in local bank accounts that paid negative interest rates.

QOSHE - Argentina’s Inflation Paradoxes - Andrés Velasco
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Argentina’s Inflation Paradoxes

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07.05.2024

LONDON – Why is inflation going down in Argentina? Because it went up massively late last year. Why might inflation rise again in Argentina? Because it has been falling in recent months. Those are the two main conclusions of a wonderful recent paper by two........

© Project Syndicate

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