November 21, 2014
New Year fireworks
If the start of every New Year is invariably accompanied by festivities and fireworks (rather less this year, judging from the casualty figures), price increases tend to be another distinguishing feature — what makes many of the latest increases different is that far from being merely attempts to keep up with inflation in some index-linking mechanism, they are paradoxically designed to tame inflation in something of the spirit of “the war to end all wars” which began 100 years ago this coming August. The increases in bus fares and fuel prices ultimately aim at trimming the unsustainable subsidy mountain which almost single-handedly accounts for a fiscal deficit which is basically financed by printing money (and hence inflation) in the absence of overseas credit. Yet in common with the accelerating devaluation aimed at narrowing the exchange rate gap, these moves are obviously inflationary in the short term, however corrective of the disarray in fiscal accounts and relative prices.
The New Year price increases are unfortunately timed for the start of the collective bargaining season, pushing the likely floor of wage increase demands up to 30 percent when government guidelines do not go beyond a 15-20 percent range. Success against inflation seems impossible without a wage restraint to which the Cristina Fernández de Kirchner administration seems more committed than ever. In previous years the government tended to be in two minds over wages — while on the one hand moderation always helped against inflation, lofty pay increases served to fuel the consumer-led growth which is the core of the Kirchnerite “model.” But the current preference is to discourage any consumer boom (apart from the inevitable surge of television sales in a World Cup year) because there is no way to pay for the extra imports which increased production levels would entail. Yet this creates the political problem of explaining how wages can be held below the pace of both dollar devaluation and price increases (especially in hitherto subsidized areas) without any austerity policies being applied.
And yet with no elections this year and no re-election of the current presidency possible in the next, surely now is the time to bite the bullet while the process is still under control instead of letting things slide into an inflationary spiral. No replay of the 2001-2 economic crisis is on the horizon and nor did that meltdown prevent a subsequent commodity boom (which Vaca Muerta shale promises for a distant future) but why not break free from such boom-and-bust cycles?