Tuesday
October 21, 2014

To avoid decrease in currency value from affecting prices

Friday, January 24, 2014

Economists call on government to implement anti-inflation plan

Despite the possibility of the last two days of a sharp peso devaluation leading to a more competitive economy, the measure implies several risks for the domestic economy, including a higher inflation rate, and could lead to higher income demands from unions in the upcoming wage negotiations.

The official dollar closed yesterday at eight pesos after jumping 86 cents, the highest devaluation since March 22, 2002. So far this month, the peso has seen a 22.7 percent devaluation. The Central Bank intervened and sold US$100 million in order to control the currency.

Economists, who say inflation has quickened over the last few months could lead to demands from unions of as much as a 40-percent increase in wages, point out that devaluation could have a quick impact on prices.

A number of economists told the Herald yesterday that a co-ordinated plan should be implemented to fight inflation and called for complementary measures such as price agreements and additional subsidies for transportation in order to try to mitigate what could be the ill-effects of devaluation.

“If there’s no plan to fight inflation, prices will soon increase. Up to 25 percent of the goods in the economy are imported, and that leads to a quick impact on prices,” Esteban Domecq, economist and head of the Invecq firm, told the Herald. “If the only plan is to devalue without other measures, inflation will reach 40 percent this year.”

Estanislao Malic, economist for the Centre of Financial Studies for the Development of Argentina (Cefidar), said the only ones who benefit from such a devaluation “are the financial sector” and said the measure is only “good for exporters and dollar-hoarders.”

“A devaluation has to be complemented with social policies such as price agreements and transports subsidies. It’s not enough with the current price agreement,” Malic said. “If the government takes this kind of measures soon, it will be able to control the wage negotiations. Otherwise, they will be quite complex.”

So far the government’s main strategy to fight inflation has been price agreements. A new deal with supermarkets and suppliers was announced weeks ago by Trade Secretary Augusto Costa and includes 194 products, with 100 different types of products, including eight different kind of beverages, meat, dairy products, cleaning supplies, toiletries,vegetables and bread. Inflation totalled 10.9 percent last year according to the INDEC statistics bureau, while opposition politicians say the inflation was closer to 28 percent.

After the wage increases authorized for police forces by several provinces, numerous unions have expressed a desire for a 35-percent wage increase this year. Unions had also called for a discussion on wages every three or six months, a proposal rejected by the government since it could lead to a higher inflation.

“The government needs to devise a plan to fight inflation because, without one, prices will continue to go up,” economist José Luis Espert told the Herald.

FK

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