RIO DE JANEIRO, BRAZIL – Alberto Fernández’s government plans to create a national food company in the umpteenth attempt to contain inflation after Argentina’s price control policy failed. Government spokeswoman Gabriela Cerrutti announced on Thursday, February 17, that this initiative will allow small and medium production of vegetables “to reach different families in a more economical, cheaper way.”
The announcement comes days after the National Institute of Statistics and Censuses (Indec) reported that January inflation was 3.9%. In 2021, the cost of living increased 50.9%, even though the government implemented a price control system through agreements with business chambers from different sectors in the last months of last year.
Inflation in Argentina is among the highest in the world, and in the region, it is only surpassed by that of Venezuela. The most alarming figure in the first month of the year was that seven of the 12 reference items compiled by the consumer price index registered increases of more than 3%.
Analysts agree that the price control policy is like giving an aspirin to a terminal patient because Argentina’s inflation problem, which dates back to the early 2000s, requires the correction of macroeconomic imbalances.
“Despite extensive and increasingly extensive formal and informal price control mechanisms, high inflation is now deeply rooted in price and wage formation mechanisms,” warned Goldman Sachs economist Alberto Ramos. “This attests to the significant imbalances in macroeconomic policies and the failure of the monetary authority to ensure monetary control and achieve low and stable inflation.”
Gabriela Cerrutti assured that “the government is pursuing strategies, such as allowing small producers to distribute their goods or decoupling seasonal prices from international ones.”
She did not detail the national food company or when it would start operating. The official strategy also involves materializing the International Monetary Fund (IMF) agreement to refinance the US$44.5 million debt incurred in 2018 to achieve “some financial stability.” In practice, Argentina uses the dollar as a reference to set prices, and the US currency has surpassed its historical value in the informal exchange market due to the risk of a new default.
The government and the IMF reached an agreement in principle at the end of January, but the details are still being negotiated. In addition, refinancing the debt requires congressional approval, and it is not yet clear whether the ruling party will obtain the necessary votes.
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