On Friday at the Cck ceremony for the relaunch of the Fair Prices program, a version of the price controls applied by the Government, Sergio Massa, Minister of Economy, highlighted the following.
“No one in this deal is to cheat. Some companies have restricted the supply of products in gondolas by claiming they have no supply in the value chain. Just as we once said that we cannot allow companies to under- or over-invoice imports or exports, we cannot allow access to public benefits to not end up redundant to the advantage of the consumer or citizen. We must make the effort together, avoiding trouble. Just like we put incentives, we must also expose those who cheat the state”, Massa warned in the CCK.
In economics, there is something called price (P) by quantity (Q) -pxq is its algebraic expression-, and one of its maxims states that both variables cannot be controlled and a choice must be made between driving up prices (more inflation) or shortages (limited supplies on shelves). Massa aims to argue that q does not decrease, monitoring that businessmen do not “cheat”.
The Economy Ministry knows that stabilizing inflation is the card with which the minister plays his image as a political leader for this election year and his future projections.
But what Massa doesn’t matter is that a sharp drop in inflation would be costly because the exchequer would lose revenue and a fraction of expenditure would increase in real terms, as happens for pensionsaccording to a recent study by the consulting firm Analytica, led by economist Ricardo Delgado.
“56% of primary expenditure is made up of social benefits, pensions and social programs. These items, either automatically or at your discretion, are adjusted based on past inflation. If it were reduced in the coming months, more than half of public spending would increase in real terms, because the adjustments come with a lag. In the meantime, tax revenues would also grow, but to a lesser extent: in real terms they are more insensitive to changes in the inflation rate. Consequently, the primary deficit, in a context of downward inflation, would grow”.
The fiscal target committed to the IMF of a 1.9% deficit is compatible with an average monthly inflation of 5.5%a 90% annual change between ends, says Analytica.
In Argentina we always talk about the advantages of lowering inflation. They are undeniable. But it also poses challenges for the Treasury. The less prices go up, the more difficult it is for politics to hide the adjustment it has promised to make with the markets. Or vice versa: inflation smears the figures and hides the adjustments of the non-updating of assets and benefits. It is the inflation trap.
Source: Clarin
