The war against inflation: what were the battles that Alberto Fernández's government has already lost against prices

In a scenario in which the President warned that “the war against inflation begins”, it should be recalled that during the first two years of the government of the Frente de Todos there were some milestones in inflation that show that there were several lost battles against widespread price increases since President Alberto Fernández took office in December 2019.

Inflation reached 4.7% in February and thus accumulated 52.3% in the last 12 months, according to the National Institute of Statistics and Censuses (Indec) on Tuesday. Food, for its part, once again played a significant role in February's inflation, as it had an increase of 7.5 percent.

After 2018 with a price level that was close to 50%, 2019 closed with the highest value in the last 28 years. The Consumer Price Index (CPI) for December 2019 stood at 3.7%, which led to a rise in prices throughout that year to 53.8%, as reported on January 15, 2020 by Indec. The category that showed the highest inflation was food and beverages, which was very sensitive to the change in the dollar, which almost doubled in a year, from $38 to $63 between January and December. Since then, there have been measures without much effect and increasingly alarming indicators.

On 26 December 2019, the Board of Directors of the Central Bank ordered a reduction of the lower limit of Leliq's interest rate by three points, lowering it from 58% to 55%.

Months later, in the first week of March 2020, the Central Bank of the Argentine Republic (BCRA) lowered the Leliq rate by two percentage points and placed it at 38%: it was the eighth reduction in the benchmark interest rate since Miguel Pesce took over as head of the monetary authority. “With this reduction, the benchmark rate in effective terms stands at 45.4% per annum. This keeps it on positive ground enough to promote savings in pesos and at the same time restore the credit situation of families and companies through the reactivation of credit,” said the BCRA at the time. He added: “The decision was adopted on the basis of signs of consolidation of the deflationary process and with a view to generating conditions that favor the recovery of economic activity.”

2020 closed with inflation of 36.1%. With that figure, cumulative inflation during the first year of the pandemic was 17.7 percentage points lower than that recorded by Indec in 2019 when it reached 53.8% (the highest value in almost 30 years). However, although Argentina recorded a slowdown in inflation that year, the country ended up with the second highest inflation in Latin America and among the highest in the world in 2020, after Venezuela. That year, in addition to the recession caused by the pandemic, there was a total freeze on tariffs and a strong control of changes, both factors that impacted prices.

During 2020, the Government issued a huge number of banknotes: 1,523 million units were turned to the market and the total circulation was raised to nearly 7 billion. In 2020, monetary circulation increased 66%, from 1.15 to 1.9 trillion (one trillion is one million) pesos. The Central Bank covered that $750 billion increase with a net increase of 1,523 million banknotes in circulation.

Seeking to avoid increases in mass consumer products, the government renewed price controls in various formats almost from the beginning of its administration, with limited results. The increase in the category “Food and Beverage” in February of 7.5% was the highest for that month since Indec resumed its measurements in 2016.

In June 2020, at the height of the quarantine to face the coronavirus, the Government announced a plan to intervene the Vicentin company and nationalize 51% of its share capital, for which it sent a project to Congress. Beyond the difficulties faced by the company, sixth in the ranking of agro-exporters, one of its objectives was to control the grain market and dominate its prices.

“The fact that the State has a witness company in the sector is very important. It is a strategic measure that favors Argentina to achieve food sovereignty,” President Fernández said at the time. A few weeks later, the plan had to be deactivated due to its legal and economic infeasibility.

The Government has limited the export of beef since last May in order to cause a drop in consumer prices in the domestic market. At first, a total closure of exports was imposed for 30 days, and then a system of export quotation was imposed until the last 31 of December, and the ban on exporting 7 barbecue cuts that are sued in the local square. It is worth mentioning that although there was a slight decline in values in certain months, it was generally up.

On October 13, 2021, the national Government made official the appointment of Roberto Feletti as head of the Ministry of Internal Trade, replacing Paula Español. The measure was formalized by Decree 703/2021, published in the Official Gazette, which bore the signatures of President Alberto Fernández and the Minister of Productive Development, Matías Kulfas.

Inflation in Argentina closed 2021 at 50.9%, it was the highest price increase since 2019, according to data released on January 13 by Indec. According to the statistical agency, the General Level of the Consumer Price Index “recorded a monthly increase of 3.8% in December 2021, and accumulated an increase of 50.9% in the twelve months of 2021″.

In his speech to the Legislative Assembly on March 1, President Alberto Fernández argued that inflation is “the big problem that Argentines and Argentines have.”

“Inflation is the big problem that Argentines and Argentines have at the moment and, without a doubt, it is also the main concern and the main challenge of the Government. There are many factors that affect inflation and they all have to be attacked in a coordinated manner,” he said in his speech.

Government spokeswoman Gabriela Cerruti confirmed on February 17 that the Government is working on the creation of a National Food Company to control prices.

“Inflation is a damage to the Argentinean table and the government is evaluating a solution, not because it interests it politically, but because it is their duty to change people's lives,” Cerruti said. And in that context, he indicated that there are possibilities to create a state-owned food company, whose objective is to guarantee low prices and help small producers of fresh vegetables.

In the midst of the war between Russia and Ukraine, despite the fact that higher dollar earnings are expected in Argentina, mainly due to the rise in soybeans, it is estimated that inflationary pressures will also intensify. The rise in commodity prices as a result of the war could add even more inflation to Argentina's food basket.

Prior to the release of the price index, President Alberto Fernández said on Tuesday that, after “putting the debt issue in order” with the International Monetary Fund (IMF), on Friday “the war against inflation in Argentina begins”.

At the head of the opening ceremony of the renovated Tortuguitas station on the Belgrano Norte railway line, in the Buenos Aires party of Malvinas Argentinas, the head of state slipped: “I hope this week we can begin to bring order to the issue of the tremendous debt we inherited. And on Friday the war against inflation begins in Argentina; we are going to end the speculators.”

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