Inflation is a state policy in Argentina

March inflation stood at 6.7% monthly. Assuming an optimistic position, the Minister of Economy stated that this rate will be the highest of the year. He argues that increases in regulated prices coincided with increases in foodstuffs. In any case, core inflation –which is inflation in products that are neither seasonal nor regulated– was also in the order of 6.4%. This means that, even assuming a strict freeze on regulated prices and that seasonal prices compensate each other, inflation in the coming months will be higher than 4%. More pessimistic positions warn about the possibility of hyperinflation. 

The outcome is unpredictable because it depends on the magnitude of monetary issuance and people’s demand for the Argentine peso. As long as both variables do not dislocate, the situation will be high inflation without reaching hyperinflation. In any case, high inflation is a long-standing phenomenon.   

In the last 60 years, half of the time there were Peronist governments, a quarter of the time there were Radicalism governments (alone or in coalition), and the other quarter there were military governments. Taking data from the Ministry of Economy, it can be observed that:  

• During the years of Peronism, the average annual inflation rate was 78%.
• During the years of military government, the average annual inflation rate was 132%.
• In the years of the Radicalism government, alone or in alliance, the average annual inflation rate was 386%.

These data show that, although there are differences between administrations, there was high inflation in all governments, regardless of their political orientation. It is very suggestive that for such a long time and with such dissimilar political alignments, average inflation rates have remained between two and three digits. The fact that it has been sustained by practically all governments gives inflation the status of “State policy”. 

Focusing attention on the current government’s mistakes, overlooking that in the past inflation rates were even higher, not only lacks self-criticism but also misleads the diagnosis. In the last 6 decades, all governments, beyond their ideological differences, chose to manage the State with fiscal imbalance. This led to excessive public indebtedness, which resulted in several defaults and more than 20 agreements with the IMF, and/or excessive monetary issuance. Although economic theory admits that inflation is a multi-causal phenomenon, with the accumulation of 60 years of fiscal imbalances, there is no doubt that this is the main cause of inflation in Argentina.

The solutions do not involve traditional fiscal adjustment policies. The pension adjustment by manipulating mobility to devalue pensions is not a solution because it lowers present expenditure, but increases future expenditure through pension lawsuits. Financial sustainability and equity will be achieved by a pension system based on the principle that everyone should retire under the same rules. The reiterated tax increases on those who already pay, do not provide solutions either. It is through tax unification that the tax and bureaucratic pressure will be lowered and simultaneously improve the State’s income through less evasion. Likewise, through the functional reorganization of the State, which eliminates overlapping between national, provincial, and municipal governments, it will be possible to control public spending and increase its efficiency. 

The growing concern about inflation is an opportunity to become aware of the importance of an orderly State. Not only to achieve stability but also to get out of the long decline. To blame the current government or to ask someone else to take charge of deploying the traditional fiscal adjustment is to stubbornly repeat the same mistakes.