Cezar Martinez, 45, works full-time in Buenos Aires as a butcher, but has since had to take other positions to make it to the end of the month. Something didn’t quite add up when President Javier Milei’s government publicly celebrated a new drop in the inflation rate as a sign of a recovering economy.
According to Martinez, “the amount of money never suffices to buy everything, not even the most basic things.”
Buenos Aires, Argentina’s capital, shares a similar sentiment.
Milei’s campaign promise, which was to drastically reduce inflation, which had reached a record monthly rate of 25% in December 2023, has come almost a year and a half since taking office. The monthly rate, which is currently at 1.6 percent, is among the lowest since April 2020.
High inflation in Argentina’s population put strain on it in 2023, with wages stagnant and prices of basic goods like food, services, and rent rising month after month.
According to Mariana Heredia, a researcher at the National Scientific and Technical Research Council (Conicet), Argentina has a history of high inflation dating back to the 1940s, with the most recent example being in the late 1980s.
“Inflation is a global phenomenon, but Argentina has been such a constant that people have a tendency to believe that all of their problems are related to it. Stability is very important to the people of this country, Heredia told Al Jazeera.
One of the reasons Milei’s campaign promise to combat inflation helped him win significant support as president is a result of this. He now claims that the government’s efforts to achieve a fiscal surplus, which included drastic reductions in public spending, including those made in healthcare, education, social services, and public infrastructure projects, are evidence of the success of his economic program.
However, his program also involved a steep nominal devaluation that caused the Argentian peso to rise, increasing the country’s currency. This has severely impacted the purchasing power of large segments of the population, combined with a sharp decline in real wages.
Argentina currently has some of the highest salaries among Latin America’s most expensive nations.
Although tackling inflation was necessary to begin repairing Argentina’s troubled economy, experts claim that it isn’t enough.
According to Guido Zack, economic director at Fundar, a national think tank, “inflation isn’t everything.” Although having a low inflation rate is important, Argentina’s economy’s recovery has been very uneven across both the economy and the population. The rate of informal employment has increased, and the poverty rate is still very high, but the majority of the population still has a low purchasing power. There is still a great deal of work to do.
Other analysts have criticized some aspects of Argentina’s inflation calculation process. They claim that the current consumption patterns are not accurately reflected in the basket of goods and services created in 2004 and updated in 2016. This includes the portion of income that goes toward housing, which increased by 4.5 percent in the renter-dense greater Buenos Aires area in June alone. Renters spend an average of 44.5 percent of their income on rent, according to an Inquilinos Agrupados (Organized Renters) poll conducted in September that found that tenants spend it twice annually.
Economic Stress:
The imbalance between some economic indicators and what people go through on a daily basis is what the Catholic University of Argentina’s Observatory of Social Debt calls “economic stress,” the increased perception or reality that the majority of salaries are insufficient to pay for basic living expenses.
The country’s rising personal borrowing rate is a prime example of this. In Argentina, 58 percent of the loans were used to purchase food in 2024, according to a recent report from the Social and Economic Statistics and Tendencies Institute (Instituto de Estados y Tendencias Sociales y Economicas).
The butcher says that sales have slowed down significantly in recent months. It’s difficult to find anyone paying in cash because people are always looking for discounts, purchase smaller quantities, perhaps for the day, and typically use credit cards.
On the streets of Buenos Aires, where protests against inflation and cuts to public funds are more common, with protests primarily led by pensioners, also becoming more common.
Renters in Buenos Aires protest a raise in their state pensions every Wednesday in front of the country’s Congress. Five million people currently receive a $300 monthly pension, which is below the minimum wage. In order to increase pensions, Milei has pledged to veto a bill that has been approved by Congress.
Raul Maldonado, 68, retired in 2020 after 35 years of service as a factory lathe operator. He now only receives the minimum pension, which is currently paid.
“I make 15 days of money.” I wouldn’t be able to survive without the support of my family, he claims.
The game is long
The question is whether Milei can keep inflation low while adopting measures to improve other indicators as his current economic plan promises to continue to advance.
Heredia claims that the anti-inflationary program’s focus on reducing public spending and creating a preferred currency is similar to those that were put in place in Argentina in the past but ultimately failed.
These kinds of programs can initially relieve people; they also cause some high-earning sectors to experience some economic recovery and, in some cases, an increase in income. However, the costs start to show up in the middle of the year as a result of the government spending cuts, the importation of local products, and the impact of the job market.
The adoption of measures designed to address some of the structural issues Argentina faces, which have a negative effect on the economy, is Zack believes the key to a long-term economic recovery is.
He cites the country’s complex tax system, high bureaucracy, the country’s current lack of investment in public infrastructure, such as roads connecting it, as well as the low exchange rate and import openness.
Source: Aljazeera
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