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The inflation rate, the price level and incredible monetary policy

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The Government has decided to grant some advantages for the importation of some products: preferential access to the foreign exchange market and some tax breaks, with the aim of counteract the “exaggerated” increase in some prices.

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These measures they don’t look like them of an economic team that correctly pointed to the root cause of our high inflation and that, in its first measures, was consistent with that diagnosis.

The inflation pandemic was eradicated in the world when it was reached a political agreement concentrate responsibility for combating the general rise in prices in the Central Banks.

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I underline the political agreement, because since inflation is a non-legislated tax, its use and abuse in our country emerges as the “alternative solution” to the proposal to Congress for a fiscal consensus that would allow the autonomy of the Central Bank.

As expected, “yesterday’s solution is today’s problem”.

Because the way to evade the inflation tax is to reduce your holding of pesos as much as possible and flee to a safe haven currency, which generates more inflation and more destruction of your currency.

Naturally, politics (the “caste” as the President would say) hid the hand that threw the inflationary stone, seeking responsibility for the increase in prices in other actors: supermarkets, large companies, etc.

In line with this history, the fight against inflation was transferred to the Ministry of Commerce.

There is no need to point out the failure of this strategy. Over the last 45 years the average inflation rate has been 250% per year.

It is no coincidence that the only periods of low inflation in these 45 years correspond to the convertibility phase, when the Central Bank issued pesos only to satisfy the demand for currency against dollars, and also to the first years of Néstor Kirchner’s government, when the Fiscal surplus and default have limited the need to use the Central Bank as an alternative Treasury fund.

This is why the Government is right when, faced with politics and businesses, insists on placing emphasis on fiscal balance.

Now, the Central Bank is responsible for the inflation rate, but not for the price level.

And the problem is that we suffer from both diseases. Not only is the inflation rate high, but many goods also have much higher values ​​than similar products in the rest of the world.

And it is at this point that the regime change occurs.

The difference between the price, for example, of an item of clothing or a car in our country and what is paid in other countries depends on the tax structure, the cost of labor, tariffs, logistics costs, bureaucracy, by size, degree of competition, productivity. Of what, when I was a boy, It was called “the Argentine cost”.

It is true that, temporarily, the Central Bank can sweep Argentina’s competitiveness problem under the carpet with a super-devaluation or with an expansion of the peso such as to generate excess demand in the free dollar market, with the consequent excessive increase of the its value, as happened last year when Argentina was “given away” to anyone with dollars. But this doesn’t last long and sooner or later affects prices.

And this brings me back to the beginning of this note and monetary policy.

The President marked the trend of economic policy very well during the election campaign. Fiscal balance, end of emissions to finance the deficit, tax and labor reform, defense of competition and opening of the economy.

Back to the failed tactics of bringing companies together to “challenge” them. or resort to aa asymmetric treatment of the availability of dollars to some actors as a way to “discipline” prices It does not seem like a path compatible with a serious regime change program.

To paraphrase Adam Smith: “when two shopkeepers meet for tea (invited by the minister, I add), nothing good happens for consumers.

In fact, all “encounters” in recent decades have always ended favoring large manufacturing or marketing companieswithout having a positive impact on consumers.

What is in countries with market economies penalizedthat two competing companies meet, The government promotes it here.

Paradoxically, the new law on defense of competition was incorporated into the Law on Basis It also prohibits these behaviors.

That said, it is fair to recognize that the authorities are paying the consequences of an incredible monetary policy. In the sense that was not believedor that its ability to reduce the real quantity of money to the extent seen in recent months and to support an exchange rate anchor with a devaluation rate of only 2% per month has been underestimated.

In other words, monetary policy turned out to be so restrictive that the recession needed – to reduce demand for imported dollars – was much stronger than expected, and many prices were out of step with the new level of activity and the idea of ​​such a recession. the scanning speed would not be maintained.

The triple anti-inflationary action, the fiscal anchor, even temporary, the monetary anchor and the currency anchor, They were not believed.

In defense of businesses, it should be noted that one of the worst legacies left by Kirchnerism was the stock of unpaid imports that forced them to ration access to foreign currency at the official exchange rate. This creates uncertainty for manufacturers. about the price of the dollar at which they will finally be able to make the payment and therefore, they cover. The lack of access to imported dollars has weakened the exchange rate anchor for setting prices for imported inputs or products.

Incidentally, until the dollar market for importers is normalized and the increase in regulated prices is largely completed, there can be no discussion of “inflationary inertia” in prices.

In the first round of the presidential election, two-thirds of voters voted in favor of regime change.

It was to be expected that this attempt at regime change would give rise to the conflict that Argentine politics had been postponing for decades.

Now we must face the conflict and resolve it.

Adhere to a more permanent and credible monetary and exchange rate regime; with a new tax plan for the Nation and the Provinces and with rules that attack the Argentine cost.

The latter is crucial, because any successful process implies a low real exchange rate.

The Argentina of the “bonanza” is increasingly expensive in dollars and, therefore, without attacking the structural issues, said “bonanza” ends badly.

This is what is at stake in the coming months and will be the responsibility of the entire Argentine political class.

Source: Clarin

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