Prices vs. wages: the inflation race in Argentina

In recent months, we have seen reports and news articles comparing the prices of basic basket products in Argentina with other countries, especially Spain or the United States.

From this comparison we can see that Argentina keeps its prices cheap in relation to other countries, but if we take it to the local level there is a notable imbalance between prices and wages, which are not updated at the rate of inflation, where prices are measured in dollar value and wages in local currency and which are almost 9 times lower than that of a Spanish worker, so they are not even enough to have a decent purchasing power.

As Argentine incomes fall in their conversion to dollars, the currency loses its purchasing power and lowers its consumer power in the internal market, which becomes a vicious circle composed of these three major components: prices, wages and exchange rates, and the only way to solve it is by cutting off the root problem, which is lowering inflation. At the moment, the fall in inflation is being done as a consequence of a very strong recession, the drastic fall in wages has impacted a noticeable decrease in consumption and brake private investments, which only lead to the social crisis that Argentina is already experiencing.

That is why it is necessary to update wages in order to recover the lost purchasing power and to bring them in line with the prices measured in dollars, a dollar free of exchange restrictions, which opens exports and allows free competition, the engine to regulate the prices on the shelves, according to the free market paradigms of the current government.

But for now the landscape is not suitable for such a game, because for that to happen there must be a large inflow of dollars, such as those that the rural sector is expected to bring when it liquidates the heavy harvest, so as not to suffer a bank run that would further accelerate the current level of inflation.

For this reason, for now, the focus is on preventing the exchange rate gap between the official and parallel market from widening, and to prevent a surge in financial dollars. The government will aim to control the amount of circulating pesos and maintain the financial surplus from January.