Inflation in Argentina

Inlfation in Argentina reaches 78.5%

In economics, hyperinflation is a very high and typically accelerating inflation rate. It quickly erodes the real value of the local currency, as the prices of all goods increase. This causes people to minimize their holdings in that currency as they usually switch to more stable foreign currencies.

Argentina is currently battling an economic crisis and has seen inflation rates rise to multi-decade highs of 78.5%. In response to this, the Argentinian Central Bank has hiked interest rates to 69.5% to try and combat this hyperinflation that is eroding the salaries and wealth of Argentinian citizens. The country still however has a negative real interest rate given the spread between the inflation rate and the interest rate, and further rate hikes can be expected. Economists forecast inflation to reach as high as 100% by the end of 2022.

How are citizens dealing with the high inflation?

1. In poorer neighborhoods' people have resorted to bartering to avoid the peso all together
2. Citizens save and hold as many US dollars as possible and most big purchases in Argentina are made in US dollars
3. The government however restricts citizens from buying more than $200 in US currency each month and many citizens have resorted to black markets to acquire US dollars
4. Citizens have a large distrust of banks and credit due to decades of high inflation in the economy
5. They look to spend their pesos as quickly as possible to avoid devaluation of their money
6. Many citizens buy goods in instalments predicting that the value of the peso will continue to fall in the future

Almost all hyperinflations have been caused by government budget deficits financed by currency creation. Hyperinflation is often associated with some stress to the government budget, such as wars or their aftermath or socio-political upheavals. Argentina has been in a budget deficit since 2009 and has resorted to printing pesos at an uncontrollable rate to support the economy. The government currently owes the International Monetary Fund over $44 billion and will have to implement some stringent monetary policy to correct the collision course the economy is on. Hyperinflation in Argentina has been accelerated by the negative impacts COVD-19 and the Russia-Ukraine war has had on global supply chains.