Argentina Inflation

By: EconomyWatch   Date: 14 October 2010

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As an aftermath of the economic backlash to which Argentina was subjected in the year 2001 and the hyperinflation which it witnessed in 1980, Argentina inflation has served as an indicator of economic well being of Argentina. Owing to Argentina inflation, the government in Argentina is making use of anomalous procedures to handle the problem of inflation. To this effect, there was information about the government, recalculating numbers and fixing prices. This tendency of the government, is sure to discourage investments in Brazil.

It is reckoned that the government in Argentina is intercepting activities of National Institute Of Statistics and Census. In 2007, April, National Institute Of Statistics and Census, declared increase in price for the month of March with regard to basic foods. It was declared at 3.6 percent. Immediately, thereafter National Institute Of Statistics and Census, revisited its numbers as well as figures and declared a compression of 0.2 percent. So, the annual Argentina inflation was brought to 8.9 percent. Due to the disparity, people have lost faith in the numbers estimated and declared by the government. As a result of this non transparent behavior of the government, investors are expected to think twice before shelling out their cash.

Importance of Argentina inflation:
As Argentina inflation is regarded as an indicator of the economy's health, a high rate of Argentina inflation implies that there is gradual warming up of the economy and owing to the uncertainty, which it creates, overall economy may be adversely affected. Since, every country has an economic cycle, upsetting one sector may directly or indirectly impact the other. Due to inflation, currency of Argentina- peso, gets revalued. In the first three months of 2007, there was rise in exports and it was recorded at 11 percent as compared to 9.9 percent in the previous year (2006).
Measures taken by the government:
To counter inflation, the Argentinian government has made available a number of bonds, which are inflation adjusted. One such bond is the Global 2033. This bond has a coupon payment of 5.83 percent. With increase in inflation rate, there will be pressure on the financial framework of the government as the investments will subside. This will in turn impact the economic output, whose operating potential presently is 74 percent.

Increase in wages are being capped by the government at 15 percent. This step was taken by the government to neutralize the effects of Argentina inflation to some extent. With increase in inflation, the purchasing power is lost. To nullify devaluation trade unions demand more wages.
Future trends in Argentina inflation:
It is anticipated that there will be a healthy growth in the gross domestic product or the GDP. This will again boost foreign direct investment or FDIs. However, experts say that FDIs will be here to stay, but if investments in Argentina have to be given a second thought, there are doubts about the consistency of the foreign direct investments. It is also reckoned that inflation is likely to go down to 10.3 percent by 2007 end. This figure is likely to reach 12.7 percent in the year 2008.


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