Inflation in Everyday Life: An Argentinian Family Reports
In the last seven decades, there have only been 14 years in which Argentina's inflation rate has been below 10 per cent. But what does inflation mean in everyday life? A visit to a middle-class family in Buenos Aires.
2014 was a hard year. For the first time, Myriam Simone really had trouble making ends meet in her household budget. And she came to realize that even 19 years of experience in banking had left her unprepared to accurately anticipate the cost of living in Buenos Aires.
Myriam Simone, 39, and her husband, Leandro Checa, 41, have two children. Shortly before the birth of their second son, Agustín, they decided that she should apply for six months of unpaid parental leave. Both are good with numbers; they both work at a bank, in middle management. Using Excel spreadsheets, they had added up all their expenses. Food, school fees, car, vacation. They had also allowed for inflation, calculating price increases at 25 percent. The numbers all worked out.
Belief in a Miracle Cure
But one year later, the inflation rate had climbed to 40 percent, and the price of food and fuel had risen even higher. "We had to max out our credit cards," says Leandro Checa. "And once more, it was clear: You just never know what will happen in Argentina!"
Time and again, people who live in the world’s eighth largest country have suffered from the unpredictability of its economy. In the past seven decades, there have been only 14 years in which the inflation rate was below 10 percent. The peso has fallen to just 0.00000000000005 of its value in 1963. Four currency reforms in 40 years led to depreciation by 14 decimal places. The authorities governing this resource-rich country combine an aversion to budgetary discipline with belief in a miracle cure. Many economists blame the inflation rates under the Kirchner dynasty, in power since 2003, on its pursuit of quick results. Presidents Néstor and Cristina Kirchner used government subsidies to fuel domestic consumption, which created jobs and boosted tax revenues.
Where Once There Was Growth, Today Recession Prevails
The inflation rate climbed into double digits as early as 2005, a fact that the government tried to cover up. Year after year, prices rose by 20 to 25 percent. Driven by steadily rising commodity revenues, that worked out fairly well for years, because salaries kept pace. But in 2011, Cristina Kirchner introduced foreign exchange controls that all but stifled foreign investments. After that, inflation held sway. Where once there was growth, today recession prevails. The US court ruling that forced Argentina to cease servicing its debts as a result of its dispute with holdout creditors of its 2001 debt default has exacerbated this dilemma, with Argentinians feeling the effect.
Everything Costs More
Leandro Checa recites the list: "School fees for our seven-year-old son Martín: three increases in the past year, from 2,000 to 3,200 pesos. A tankful of gas: 400 pesos a year ago, 700 today." Other costs likewise soared: highway tolls, subway cards, eating out. Myriam used her parental leave time to comparison shop. Now she knows which stores in her neighborhood (Villa Urquiza in Buenos Aires) have the best prices for cheese or baby cereal.
Certainly, it's not the supermarkets. Their markups are higher in Argentina than anywhere else in the world. The reason is the complete absence of reference prices. To keep peace with the government, the supermarket chains offer about 500 products at low prices agreed upon with the Economics Ministry. Of course, Myriam Simone takes advantage of these "precios cuidados" (careful prices). And she also accepts promotions – likewise initiated by the government – that let her pay in 12 interest-free installments for clothing or electrical appliances made in Argentina. The state-owned airline, Aerolíneas Argentinas, offers 24 interest-free installments for long-distance travel; the airline accrues 2 million dollars in debt every day.
Dollars or Bricks to Protect Against Inflation
Airline tickets are popular speculative commodities for the middle class. After foreign exchange controls were introduced, many families took advantage of the low dollar exchange rate to book travel for several summers in advance.
Travel abroad is still a dream for the Simone/Checa family. They hope that in 2015, with two full salaries, they can complete the homebuilding project interrupted by her pregnancy and parental leave, because their 55-square-meter apartment on the 15th floor of a high-rise building is too small for four. For the past five years, they have been expanding and modernizing Leandro's parents' house in the suburb of San Martín. Because they both have secure jobs, they were each able to obtain a loan, unlike many Argentinians: one at 17 percent interest, the other at 22 percent. In most countries, that would be considered usury. "Here, it's almost a gift," says Leandro Checa. Today, financial institutions charge 39 percent interest for private loans.
Renovating and expanding real estate properties are among the few legal opportunities for Argentinians to protect themselves against inflation. The reason is that houses and apartments are modernized with pesos, but still bought and sold in dollars. "People who can save money have two possibilities here: dollars or bricks," says Checa. But dollars are hard to come by. "My father always said, 'I only believe in bricks!' And that's as true today as it was then."