Argentina, Political

Living with Inflation

Sunday, March 7, 2010  

Summer vacation just ended here, and it’s a new year as well. As businesses get back to full steam, you notice how everything costs a bit more than it did last year. Everyone here is used to prices creeping up a little at a time, but some things suddenly. Right now there is a big political controversy because meat prices rose 30% in one month. For example, I noticed that one of the most popular cuts of meat had more than doubled in price between say November and February.  The government blames the corporate farmers, and the opposing party supported by those farmers blames the government. It’s a serious problem that threatens the entire economy as do oil prices in the US. Aside from this recent event, inflation has been quite high in Argentina ever since I arrived in late 2004, and it is embedded in everyday life.

You go to a restaurant, and the dish that last visit cost 12 pesos, now costs 14. (The current valuation puts the argentina peso at 3.86 per US dollar.) For weeks we were paying $2.65 for a 1.25 liter soft drink (in returnable bottle), and then one day you go to the store and it now costs $3.25. As in any cosmopolitan city, we collect takeout menus. Most of the menus are out-of-date, meaning that that although the items have not changed, the prices are not accurate. For places for which we have multiple copies of the menu, we look for the one with the highest prices, knowing it would be the most up-to-date. This happens all the time with most everything you spend money on; and though many moan at each increase, no one is shocked and it’s more of a resigned protest.

Tira de Asado, a very popular cut of meat has more than doubled in price over 4 months time.

My boyfriend and I have been wondering what’s up with our favorite empanada delivery place, because they have lagged with their price increases. They kept with 2 pesos per empanada for 2 years, and finally about 6 months ago they raised it to $2.50. Meanwhile, somewhere between 3-4 pesos is fairly common. Are they too busy making empanadas to pay attention to the cost of living? Or could it be a front for some unscrupulous business? It makes  you suspicious more when prices don’t increase than when they do. For reference, when I arrived here the end of 2004, empanadas generally cost 1 peso to 1.50, and you could even find a few places that charged under 1 peso. This reference relates to the 3-4 peso range I see now. That’s a 3-fold increase in what I’m calling “The empanada index.” Empanadas are a staple in fast food here, so this suggests a tripling of prices over 5 years.

You notice the increases most in things that you buy less frequently. I don’t own a car, but occasionally rent one for a vacation. Premium gasoline was 1.90 a liter when I first rented a car 3 years ago, and now it’s around 4 pesos. Argentina ice cream is some of the best there is, and now can cost 60 pesos for a kilogram.

Inflation affects home costs in Argentina a little differently. Though the utilities are completely privatized, the prices of electricity and gas are subsidized by the government and thus have hardly increased. The government is  looking to reduce these subsidies, but has to be careful because the first attempt created a big outcry. Rents however are controlled by the market and are about 2.5 times what they were when I first arrived here. Subway and bus fares are also increased on a much lesser scale, up about 40-50% from when I first arrived, as they are subsidized by the government.

Being early in the year, there are significant but expected cost increases on many services. My medical insurance was hiked about 20% (though still there’s no copay when I see a doctor). My gym about 30%. My shrink, 25%. I was not shocked by any of these, but in the case of the gym I was hoping for a little less of an increase, as I am now roughly paying what I was paying before in New York.

The current rate of inflation is  far the highest level in the history of the country. Friends who lived through the 80′s or 70′s describe times of hyperinflation. You would go to the market to buy a few groceries. If you dilly-dallied too long, the price of that bottle of Coke would be marked up by the time you got to the checkout.

Electronics are an exception, since their price is determnined by unique factors. Because of heavy government import tarrifs, electronics have always been ridiculously expensive here. Argentina is the most expensive country in which to buy an Apple iPod. Cheaper Chinese imports and a few decent domestic manufaturers have actually brought the relative price of electronics down over the past 5 years. It is fairly common today to have a personal computer in one’s home, with a broadband connection, as compared to in 2004  when it was quite rare. Still you see very few Macintosh computers or iPhones. In Argentina, electronics continue to be very expensive relative to other countries, and based on Argentine wages only more well-off people can afford to own both a flat-screen TV and a PC.

Salaries are up for some people, but not all and rarely in proportion to the cost of living. A friend who is programmer at a big company here has not seen a raise in his salary since he was hired 2-3 years ago. I would consider him middle class, as he lives in the subburbs in a house they own with kids. When he began he said it was a good salary, but now he’s having trouble supporting his family.

With all this inflation, for me having an orientation in dollars, Argentina is no longer the land of cheap. I didn’t come here for the bargains, but that has an impact on me, where I now have to think more carefully about spending. I am fortunate to not face the reality of someone completely dependent on earning a living here.

If things keep going this way, I wonder what will have to give. Will the peso go down in value dramatically? It has fallen almost 30% against the dollar since 18 months ago when the economic crisis hit the northern hemisphere. Before that things had stayed fairly close to 3 pesos to the dollar since sometime in 2002. Argentina needs to keep things affordable for the countries it exports to, and a lower-valued peso corresponds with that. This helps to export goods and services to pay off  huge debts from past economic disasters. With inflation continuing as it is, I bet it will only accellerate the fall of the peso this year.

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