Accelerating inflation brings Argentina closer to Venezuela

Argentina’s March inflation was the highest in twenty years, fueling expectations that the index could reach 60% or even stay above 70% annually.

The March result (6.7%) helped to speed up comparisons with Venezuela, until then the absolute leader and with a wide margin in the inflation rankings in Latin America.

A day after the Indec (National Institute of Statistics and Census) released the official inflation, the director of Strategies of the IMF (International Monetary Fund), Ceyla Pazarbasioglu, said, on Thursday (14), that “inflation needs to be domesticated” because it “paralyzes” the economy and affects the poorest.

But why has Argentine inflation started to be identified, in some sectors, as the highest in the region or, at least, on the way to it? And what do Venezuelans who live in Venezuela and who live in Argentina say?

BBC News Brasil interviewed economists and residents of Argentina and Venezuela, where the drop in prices, they say, is notorious, but the quality of life is still very complicated.

Argentina entered this year with a rise in prices, which began even before Russia’s invasion of Ukraine, which had effects on the global economy, putting pressure on inflation in several countries.

In January, Argentine inflation was 3.9%, in February, 4.7% and in March, 6.7%, according to official data.

In the first three months of this year, the index reached 16.1%.

For comparison purposes: in Venezuela, inflation in January was higher than in Argentina (6.7%). But in February (2.9%) and March (1.4%), the Venezuelan index was lower than the Argentine one, according to the Central Bank of Venezuela (BCV).

In the first quarter of this year, the rise in prices in the Caribbean country is around 11%. That is, lower than that of Argentina.

There are still numbers and analyzes that indicate that Venezuela would have emerged from four straight years of hyperinflation, starting in 2017, surpassing annual four digits or more of inflation to enter three digits or even double digits.

And since last September, the country has registered monthly inflation of one digit, according to the BCV. This scenario led Credit Suisse to reduce its inflation forecast for Venezuela from 150% to 70% at the beginning of April, also influenced by the expectation of higher growth with its oil sales in times of war in Ukraine, according to reported the Bloomberg news agency.

If the forecast of 70% annual inflation is confirmed for the Venezuelan economy and if the most pessimistic estimates for Argentina also come true, the inflation podium would be, at least, even.

Venezuelan dollarization

Why would inflation in Venezuela be falling?

“Venezuela has made a series of changes to its monetary policy including using the dollar for domestic payments. Inflation in Venezuela is falling and, paradoxically, Argentina’s is rising,” said Argentine economist Marcelo Elizondo.

The Caracas-based economic consultancy Ecoanalitica estimates that the dollar is used for more than 70% of general payments in the country presided over by Nicolás Maduro.

Venezuelans told the report that the bolivar, the local currency, is practically limited to use in digital transactions.

“Today, we all have more dollars than bolivars in the bank and almost no one has bolivars in their hands. But dollars and euros,” said music teacher Adriana Virguez Cruz, who lives in Venezuela.

The use of the dollar and the opening of the market would have been decisive to cool the aggressive and record-setting Venezuelan inflation, according to economists.

“The government, finally, reduced the financing of the deficit of public companies through the issuance of money, without support. It reduced public spending and anticipated an opening policy, with imports without taxes and this reduced costs”, said economist Victor Alvarez , former Minister of Industry to the Spanish newspaper El País.

Why did Argentine inflation soar?

Listened to BBC News Brasil, economists Gustavo Perego, a Brazilian from the economic consultancy Abeceb, in Buenos Aires, and Marcelo Elizondo, an Argentine and a master’s professor at the Instituto Tecnológico de Buenos Aires, understand that Argentine inflation has put its foot on the accelerator from the second half of last year, when the government increased public spending after receiving fewer votes than the opposition in the primary elections in August and trying to win the legislative elections in October.

The pandemic scenario and the war in Ukraine ended up further complicating the already difficult situation and generating “macroeconomic imbalances”, according to them.

“When there is an increase in public spending, mainly through monetary issuance, there is no immediate impact on inflation. But over time, inflation can be seen to increase due to the amount of money that has been placed on the market. And that is what we are seeing now”, said Perego.

Infighting at the center of power

The Brazilian economist noted that internal disputes in the center of power, with vice president and former president Cristina Kirchner openly criticizing the course of President Alberto Fernández’s government, also contribute to generating negative expectations and price markdowns.

“The fight within the government is getting stronger and stronger between the radicalized wing of Kirchnerism and the more moderate wing, let’s say, of the president.”

For Perego, from Abeceb, monetary issuance together with political uncertainties are the “serious reasons” for the acceleration of inflation in Argentina.

“When you try to think of a logic of economic policy, which has strong pillars, what is observed is that there is no political structure (for an economic course and fight against inflation),” he said.

He recalled that Argentina has just signed an agreement with the International Monetary Fund (IMF) to resolve a debt of around US$ 44 billion contracted during the previous government of Mauricio Macri, and that the agreement provides for adjustments in public services tariffs. .

In the view of Elizondo, the Argentine economist, tariff adjustments, with which the government could reduce spending on tariff subsidies, should further increase inflation.

The two understand that the fact that Argentina is a wheat exporter, affected by the war in Ukraine, and dependent on gas imports, also influenced by the war scenario, boosted the prices of food and other sectors in the country.

Latin America vs Venezuela

Inflation is on the rise in several countries, including Chile and Colombia, which have had no problems with rising prices for years.

And in Venezuela? “The situation has improved, for sure. But unemployment is still huge and visible here, as is poverty. Salaries and pensions are still miserable. As a music teacher, I survive thanks to private lessons, because I don’t have a salary anymore. It’s possible to get medicine, food, fuel. But everything at an international price. That’s why many people still depend on the help of family and friends. If they buy medicine, they can’t buy food”, said Adriana Virguez Cruz.

Difficult life in Venezuela vs quality of life

In the city of Buenos Aires, as in other cities in the region, many taxi drivers are Venezuelan. On Thursday night (4/14), one of them told the report that he had just returned from the airport, where he went to pick up a Venezuelan couple who were moving to the Argentine capital.

“My family, who is still in Caracas, tells me that prices have really dropped. But healthcare and all services are still a catastrophe. And money is not enough to live on. Here in Argentina, my fear is that so much control, as they did in my country, it ends up generating more and more inflation. Here they control prices (from a list of foods) and the dollar, and inflation continues to rise, but there is a quality of life that doesn’t exist there”, said Bryan dos Santos.

“People keep leaving my country,” he said.