Will April be the cruellest month?

Neither the origins nor the level of ambition of the agreement to freeze supermarket prices for the next two months are very clear. Various interpretations arise from the timing of a move announced in an election year, in the midst of the collective wage bargaining season and on the first working day after the International Monetary Fund (IMF) censured the quality of Argentine statistics. In the latter context there is almost an “If Mohammed will not go the mountain, the mountain must come to Mohammed” look to the freeze — if the INDEC statistics agency’s price data cannot possibly be presented as bearing any relationship to reality, then reality must somehow be budged to resemble INDEC. Yet rather than being a third level of response to the IMF after presidential Twitter fury and Economy Minister Hernán Lorenzino’s talk of a new index in a vague future, the supermarket freeze (or voluntary price restraints in theory) seems aimed at addressing the extremely basic public concern over inflation in an election year with the immediate aim of holding down prices long enough to overcome trade union resistance to a wage increase ceiling of 20 percent.

Given that this move thus far has only the authority of Domestic Trade Secretary Guillermo Moreno with none of the immediate presidential annexation seen with other government initiatives such as the agreement with Iran (indeed last month President Cristina Fernández de Kirchner seemed to favour consumer resistance over state action), the price freeze looks experimental — is it an experiment which has any chance of working? Neither past nor recent history here nor the experiences elsewhere permit much optimism. Whether the freezes of the last Juan Domingo Perón presidency (1973) or the 1985 Radical Austral Plan or Venezuela’s price caps since late 2011 or recent attempts with individual products here, the result is always the same — price controls fail to cover production costs in an inflationary economy with demand outstripping supply and retailers typically passing the costs down the chain to wholesalers, triggering shortages and hoarding. The Venezuelan experience is perhaps especially instructive — their price controls are widely seen as a consequence of the currency (and hence import) curbs since 2003 with dire shortages now compounding the power vacuum there.

Neither a price freeze nor a 20 percent wage increase ceiling will solve the problem of stagflation in an economy where the money supply expands by 40 percent — if all those extra pesos are not reflected in either prices or wages, where else are they expected to go, the “blue” dollar?