Inflation in Argentina reaches 58% year-on-year in a climate of growing social conflict

Argentine social organizations march towards the Plaza de Mayo, in Buenos Aires, on May 12, 2022.
Argentine social organizations march towards the Plaza de Mayo, in Buenos Aires, on May 12, 2022.AGUSTIN MARCARIAN (REUTERS)

The Argentine piqueteros movements have taken to the streets. Thousands of people converged on the Plaza de Mayo, in front of the Casa Rosada, under the slogan “work and salary.” They came to the Argentine capital from all over the country, as part of a large “federal march” that sought to stand up to the Government of Alberto Fernández. The demonstration coincided with the dissemination of a new inflation index, the great evil of the economy of the South American country. According to INDEC, the office that compiles official statistics, the CPI for April rose by 6%, and already amounts to 58% year-on-year, in which it is the worst accumulated since 1992.

Inflation is the variable that hits the hardest among the poorest. The rise in the CPI has been especially hard for food, which until this month had records above the average. In March, they rose 7.2%, half a point more than the general index. This month they rose 5.9%, just one tenth below.

“We came from Jujuy [extremo norte de Argentina] to demand work and decent wages. Rural workers, even those who are blank, earn below the family basket, they are starvation wages,” says Benjamín Rodríguez, a member of the Argentine Union of Rural Workers and Stevedores. A rural laborer today earns about 60,000 pesos (less than 500 dollars, at the official value), 30,000 pesos below the income that a family needs to avoid being poor in Argentina, according to the floor prepared by the Indec. Rodríguez denounces that the salary increase agreed for his sector this year is 47%, when inflation is expected to be around 60%, which will be a severe blow to the already diminished purchasing power of rural workers.

“You can’t study when you’re hungry,” reads a banner held up by teachers dressed in the white coat that distinguishes teachers and students in Argentine public schools. Mariel Chávez, a primary school teacher, says that from 2018 until now there are more and more cases of children who arrive at school hungry and for whom the food they receive there is the main dish of the day. “Some want to repeat and cannot, because there is no more”, she denounces. Many families also do not have enough income to buy school supplies or adequate clothing for their children. “There are boys who wear shoes that are too big for them, because they inherit them from their brothers and don’t have others in their size,” she says. 37% of the Argentine population is poor, but the figure rises to 51% in those under 15 years of age.

“Villa 31″, “Villa 32″, “Villa 21-24″, “Oculta”, can be read under each flag of the Polo Obrero displayed on the column that entered the Plaza de Mayo from the Obelisk. These numbers identify the slums of Buenos Aires and its outskirts, in which the majority of its inhabitants survive thanks to state subsidies with which they complement what they obtain from changas, small informal jobs. In the last 12 months, the income of these workers has increased by 41.6%, almost 17 percentage points less than inflation.

The rise in prices has been in double digits per year since the exit from convertibility of the peso with the dollar, in 2002. No government, either left or right, has found the formula to lower it. The underlying issue is the chronic fiscal deficit suffered by the Argentine State. Depending on the ideological path in which the current president stands, it will be financed with monetary issue (the case of Kirchnerism) or with indebtedness (as Mauricio Macri did between 2015 and 2019). Today, Argentina can do neither one thing nor the other: the interest rates it must pay keep it out of the international credit markets and the monetary issue is at its limit. In 2021 alone, the Treasury transferred 2.1 trillion pesos to the national State, equivalent to 4.8% of GDP.

The Government of Alberto Fernández has no other way than to reduce the deficit, a strategy agreed with the International Monetary Fund. According to the text signed with the Fund to refinance payments for 44,500 million dollars, Argentina will lower its red from 3% to 0.9% of GDP in 2025. The adjustment is repudiated by the Kirchnerist leg of the government coalition. The former president and current vice president, Cristina Kirchner, considers that reducing spending will result in less social aid and will annihilate the electoral chances of Peronism in 2023. For Alberto Fernández, on the other hand, the path is that of fiscal prudence, the only way to sustain the economic growth recorded after the pandemic.

Argentina’s GDP grew 10.3% in 2021, even above the ten-point drop recorded in 2020. “We are growing a lot in the economy, we are generating many new formal jobs, but it is costing us a lot to correct the distribution of income , and inflation has a lot to do with that,” said President Fernández at a press conference held in Paris, where he will meet this Friday with his counterpart Emmanuel Macron. “And while we encourage parity [negociaciones salariales] they solve that problem and that salaries are above inflation, we have to work on all the causes that generate it”, he said.

Among the causes identified by the Government, and also by the IMF, are energy subsidies, a strategy initiated by the Government of Cristina Kirchner to contain inflation. The State today pays a large part of the wholesale gas and electricity bill so that the increases are not transferred to households. Last year, the figure reached 2.3% of GDP. This year will be worse, due to the soaring international prices. The Fernández Executive has proposed as a solution a gradual withdrawal of subsidies according to the income level of the families, starting with the richest 10%, who must pay the full bill. For the medium and low sectors there will also be rate increases. Kirchnerism wants nothing to do with withdrawing these aids. War is fratricidal. Two Kirchner referents are at the head of the entities that regulate the price of energy and this Thursday they were absent from the public hearings initiated to debate a new tariff table.

“The increases suppose the application of segmentation, that the wealthiest 10%, which benefits from subsidies, ceases to be subsidized,” Fernández said. “These are increases that are linked to the evolution of wages in Argentina. They can never be higher than the people’s salary increase, it will always be a lower percentage. That is not an imposition of the Fund, we do it because it has to be done, it is difficult to think that the economy can subsidize the richest in terms of energy”, he explained.

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