A Bizarre Situation for Argentine Inflation

23.05.2016 • Emerging Markets

From The Monday Newspaper (ARGENTINA) –

higher inflation. lower inflation.

Inflation is undoubtedly the hottest topic of the first five months of the year. The government says it is already down, while the opposition says that is higher than ever. Aim at this week I’ll explain why, strangely enough, both are right.

They were all smiles until I got the new energy bill.

As many know, in the City of Buenos Aires rates of most public services were frozen while suppliers were heavily subsidized. The second is the flipside of the first, because with frozen prices and runaway inflation, no company survive unless the government subsidizes.

Now subsidies only served to stoke the fire of inflation , since they required to finance monetary issue, feeding the monster. As the quality of service was deteriorating, and deficits grow, the scheme became increasingly untenable. So, later or earlier, the end of the party was coming…

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