02.08.2020

why is argentina inflation so high

Everyone with a stake in Argentina has a role to play in preventing a repeat of the depression and disorderly default of the early 2000s.

3 economy. In 2017, the annual inflation rate will probably slow down and remain around 20 percent.The halving of inflation is an important achievement. The best answer I can give with my limited, but not non existent foundation in economics, is the following: Government issues more money that it should, and keeps on doing so. But no one expected the speed with which the peso plunged against the dollar in April, due to investor concerns about the government’s ability to control inflation and interest rate hikes by the U.S. Federal Reserve, which strengthened the dollar worldwide. High public spending seems to be the “original sin” that is not addressed nor corrected.If Macri does not accept the truth about government spending, his last two years in power could run into financing trouble in the face of persistent fiscal deficits.Iván Cachanosky holds a bachelor's degree in business administration and a master's degree in applied economics. Yet, since day one, the IMF’s programme has been criticised for its assumptions about Argentina’s growth prospects and its path to longer-term financial viability. Argentina’s high inflation rate is one of the factors that make it more vulnerable than other emerging markets to moves by global investors away from risky assets. It is worth noting that it is the market, not the central bank, that should establish interest rates. He's currently an instructor at CMT-Group. Inflation in Argentina is high because over the past years the government strongly expanded the money supply. But a run on the peso currency has shown Argentines and investors that the country’s history of financial volatility is far from over. That could mean trouble as Macri prepares to seek re-election in 2019. Its sovereign debt has been downgraded deeper into junk territory by Moody’s, and to selective default by Standard & Poor’s. REUTERS/Agustin Marcarian First, price stability is fragile, and the inflation rate can rise rapidly. The depreciation made Argentina’s dollar debts more expensive for the government, prompting it to turn to the International Monetary Fund (IMF) for a $50 billion loan. Inflation in Argentina is high because over the past years the government strongly expanded the money supply. Policymakers are much more likely to make a mistake. The government plans to reduce infrastructure spending as part of its pledges to cut its budget deficit under the IMF deal, which could exacerbate job losses. That is, the amount of debt is roughly the amount of money circulating in the economy.If Argentina had to service all its bonds, it would have to double its monetary base. Campaigning among workers with promises of land, higher wages, and social security, he won a decisive victory in the 1946 presidential elections. The effects of high inflation and general economic disorder permeate all aspects of Argentine society from psychology, to social consciousness to crime.

For years, populist governments printed money to finance wide budget deficits, causing consumer prices to spike.

Instead of filling the gap with new money and inflation like Kirchner, Macri does so through bonds, a strategy that is already raising red flags of alert.Argentina’s debt in bonds equals to 102 percent of the monetary base. That is, the amount of debt is roughly the amount of money circulating in the economy.If Argentina had to service all its bonds, it would have to double its monetary base.

The recession threatens two of Macri’s main campaign promises: achieving “zero poverty” and creating quality jobs for Argentines. Given that Macri’s stated goal is to reduce inflation, he has chosen to finance deficits through debt. The money-printing binge came after many years of fiscal deficits due to high government spending.The origin of Argentina’s inflation problem lies in its addiction to government spending. So far, Argentina has received $44bn under the IMF’s largest-ever funding arrangement. Inflation Rate in Argentina averaged 195.14 percent from 1944 until 2020, reaching an all time high of 20262.80 percent in March of 1990 and a record low of -7 percent in February of 1954. That resulted in a sharp decline in reserves, which had grown gradually since Macri took office in December 2015. The official annual inflation rate jumped to 51.3%/yr. Systemically important central banks (the Bank of Japan, the US Federal Reserve, and the ECB) thus have become the latest players in the old Argentine blame game.Moreover, influenced by years of strong central-bank support for asset markets, investors have been conditioned to expect ample and predictable liquidity – a consistent “common global factor” – to compensate for all sorts of individual credit weaknesses.

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