Inflation in South America
I really want to discuss some good news for President Bachelet, but I can’t find any. The latest problem is that at 7.8% inflation in 2007 was the highest in 12 years. In the past year, 42 of the 50 goods that increased in price most were food (lemons were the highest at 157%).
On the other hand, Brazil has stayed stable and under 5%. Ecuador is also incredibly low (under 3%).
32 comments:
Most of Latin America has inflationary pressures, due to a mix of higher food and energy prices and growth in credit.
Ecuador has a dollarized economy, one of the reasons it has a relatively low inflation.
The good news for Latam is that inflation is n o longer the problem it used to be.
It seems that when you are down, things just keep piling on. In addition to the inflation problem, Pres. Bachelet is having a problem within her party and the opposition to a $160 million laon that she wants to take out to keep the bus system afloat. Otherwise, she warns, the transit system in Santiago is going to shut down for lack of funds to operate.
When it rains, it really pours, sometines.
I suspect 7.8% inflation is a problem for Bachelet only because ultra-orthodox economists --who are far too influential in Chile-- say it's a problem.
Why the hysteria about very moderate inflation? There's never been any evidence to show that moderate inflation hurts the region's economies. It's hyper-inflation that's been the problem historically.
Moderate inflation is not a problem. Argentina has had moderate inflation for a few years now and it hasn't cut into its robust economic growth.
The only reasons that there's all this hysteria about moderate inflation is that (1) some people like to make political hay out of moderate inflation and (2) banking sectors who clamor for very low inflation have ample power to disseminate their propaganda.
What hysteria are you referring to? People reasonably don't like paying a lot more for food and fuel.
Increased food prices would seem to hit the poor and lower middle class harder than the bankers.
What hysteria are you referring to? People reasonably don't like paying a lot more for food and fuel.
It's basic economics, Greg. What people don't like is declines in their overall purchasing power. If their nominal income gains consistently outpace the moderate rate of inflation (as in Argentina), there is no problem because their purchasing power is still increasing steadily. If, on the other hand, the inflation rate stays even with or outpaces people's nominal income gains --in other words, if the rate of economic growth is low-- we have a problem because people's purchasing power is either stagnant or declining.
Stiglitz says the same thing, by the way. Here's what he wrote in an article in The Nation last year: "The high priests of the financial markets have convinced many of the dangers of even moderate inflation, contending that even slight increases in inflation are very costly, especially to the poor, and that the costs of reversing inflation are extremely high. This is all nonsense, as we demonstrated in successive issues of the Economic Report of the President while I was chair of the Council of Economic Advisers. Today we should be worried not about inflation but about our lackluster growth, which leaves a large 'jobs deficit'."
Increased food prices would seem to hit the poor and lower middle class harder than the bankers.
Notice how Boz repeats the talking points of what Stiglitz calls the "high priests of the financial markets."
That's to be expected from somebody who works for big finance (as he himself admits on his blog).
It's complete nonsense. The inflation-crazed acolytes of Milton Friedman's monetarism haven't done squat for the poor (as Latin America's socio-economic record in the '90s shows). It just so happens that, in recent years, more people have been brought out of poverty in the two countries where both growth and inflation are simultaneously the highest: Venezuela and Argentina.
I'll repeat it 'til I'm blue in the face. Moderate inflation is not a problem. (Venezuela's inflation could become a problem if it continues moving upward and the currency isn't devalued, but Argentina's rate of inflation is simply not a problem).
Justin,
I don't see much hysteria. The monetary authorities, rightly so since it's their job, worry about inflation and workers worry because it cuts their real wages.
Inflation is very much a problem in Argentina because workers know very well that the official rate is wrong and what they buy is rising at closer to 20% a year rather than 8%. This means they will want higher nominal wages to compensate. It may not be the biggest problem in the world and not even the biggest problem in Argentina but it sure is a problem.
And who do you work for, Gabriel?
What does my job have to do with anything?
Let me just say I have family in both Venezuela and Argentina and if you told any of them that inflation was not a problem they'd wonder what planet you are from.
Be honest, Gabriel. Who do you work for? From the sound of your post over at Boz's blog, I got the distinct sense that you might work for the "high priests of the financial markets" as well. Am I right?
All you and Boz do is spin, spin, spin for big finance. Big finance wants stable inflation rates because its financial earnings depend on it.
What truly matters for most of the population, however, is growth and how growth is distributed. The inflation rate only becomes a problem when it is high and starts cutting into growth and purchasing power. But as long as the population's purchasing power is improving in the aggregrate, moderate inflation is not an issue.
Justin,
I'm sorry, I understood you were in academia, used to analyzing issues. What's this 'high priests' all about?
And I know you are studying political science and not economics but if you are going to analyze Latin America you need to focus on economic issues a bit more. Inflation reduces real wages, that's why it's a problem for workers. Yes, if we magically could keep real wages rising or at least constant that would be great but that doesn't happen in real life.
Of course, back in 2000-2001 Argentines had much bigger problems than moderate inflation so I do agree that growth is generally more important. But inflation remains a big deal.
So are you trying to say, Gabriel, that Joseph Stiglitz doesn't know much about development economics or monetary and fiscal policy?
Inflation reduces real wages, that's why it's a problem for workers.
This is, like, third-grade economics.
If average nominal wages go up, say, 10 percent a year, and inflation goes up, say, 7 percent a year, real wages have still gone up because the increase in nominal wages outpaces the inflation rate.
Basic math.
Yes, if we magically could keep real wages rising or at least constant that would be great but that doesn't happen in real life.
Well, sure, I agree that, with Venezuela's current inflation rate, it could cause some problems for workers whose nominal wages remain stagnant; it could also cause some cyclical inflationary problems insofar as current inflation will increase workers' wage demands. So, yes, the Venezuelans need to get that under control.
But I haven't seen any evidence to indicate that Argentina's inflation rate is too high.
What Stiglitz suggests is that there is such a thing as excessively tight monetary and fiscal policy (designed to keep inflation down); excessively tight monetary and fiscal policy can stifle growth and job creation. The lack of job creation also hurts workers.
I agree with Stiglitz. In Argentina, moderate inflation has been largely a by-product of growth. The financial sectors always prioritize inflation-cutting (out of economic self-interest), but the tight monetary policy and spending cuts they demand for that purpose are often worse than the disease they propose to cure.
Big finance can scream all it wants about Argentina's moderate inflation rate, but as long as Argentina keeps growing steadily, the arguments of big finance will ring hollow.
I fully agree that there is such a thing as excessively tight monetary and fiscal policy. No argument from me on that front.
And I also agree that inflation is not the biggest problem, certainly not the moderate inflation most Latin America has today.
But you seem to be saying that it's no problem at all. That I totally disagree.
Yes, if nominal wages rise faster than inflation that is great but that doesn't always happen. Real inflation in Argentina is around 20% and anyone who lives in Argentina can tell you their wages are NOT rising 20% a year.
And for some groups, such as retirees who depend on government mandated increases, the problem is even worse.
Another group that is affected are the many Argentines whose retirement savings are in government bonds that are losing purchasing power due to inflation. To make matters worse Argentina's government is playing with the inflation figures.
Real inflation in Argentina is around 20% and anyone who lives in Argentina can tell you their wages are NOT rising 20% a year.
You keep on batting around this 20% figure, but that's not what the data shows. As far as I can tell, that's just an invention of financial groups and anti-Kirchner types who want to make some political hay and pressure the government to tighten monetary and fiscal policy.
It's extremely hard for me to believe that, in a country that just underwent 8.6 percent GDP growth in 2007, average real wages (i.e. purchasing power) actually declined during the year. I've never heard any economist make such an outlandish claim. What evidence do you have to support that claim?
Are you saying that you don't know about the whole inflation and INDEC controversy in Argentina?
Are you saying that you don't know about the whole inflation and INDEC controversy in Argentina?
I've heard some rumblings about this so-called "controversy," but even if there were some truth to it, it would still seem very far-fetched that (1) the inflation rate is actually 20% and (2) average real wages (i.e. purchasing power) actually declined during the year. Once again, what's your evidence? How exactly does the country's GDP grow by 8.6% while average real wages decline?
Why do you think the two are related? The US has grown a lot over the last 2 decades and as Krugman points out median real wages have not kept up.
It's not 'rumblings', it's very real. Several provinces have their own statistical institutes and publish their own separate inflation numbers which are supposedly fed to the national ones. Yet the national numbers are about half the provincial ones. If you read spanish check what has happened in Mendoza province.
Why do you think the two are related? The US has grown a lot over the last 2 decades and as Krugman points out median real wages have not kept up.
That's a misleading presentation of what Krugman writes. The rate of growth in median U.S. income hasn't kept up with per capita GDP growth (because the U.S. income distribution has become more unequal), but that's quite different than saying that median income has declined. The point is that median income has increased at a slower rate than overall per capita income growth in the United States.
What Krugman notes about median income growth is well-established. What you claim about Argentina is much more outlandish. You're claiming that, while Argentine GDP growth grew 8.6 percent last year, most people's wages actually declined in real terms as a result of inflation. However, you refuse to present evidence.
In the absence of evidence, forgive me for not believing such outlandish claims.
Lastly, Mendoza is not Argentina. If you want to claim that Argentina has 20% inflation, I expect to see evidence.
Justin,
do you consider Venezuela's inflation moderate?
Justin,
To be perfectly honest if you don't know about Argentina's inflation problem you may want to do some Googling to find out more. I assumed that you were knowledgeable about these things. It's not like I am talking about some super secret technical issue.
The reference to Mendoza, which you didn't get, makes sense if you know about how inflation is reported and measured in Argentina.
As for Krugman, you are quite wrong. It's not just an issue of median real wages growing a little slower than GDP but in some cases even falling. For example Krugman writes that "the total hourly compensation of the average worker, rose only 3 percent between 1978 and 1994". As you know GDP grew much, much faster those years.
You have some serious misunderstanding of economics if you think that just because GDP grew in one year it means that median wages had to rise as well. That would depend on the share of wages vs capital and the distribution of wages. And another point. Reporting lower than actual inflation means that GDP is exaggerated so the 8.6% may not be that high.
Finally, I agree with the general point that you make that inflation is not the most important issue and that growth is more important. But you seem to have a very theoretical view if you think that Argentines or Venezuelans don't think inflation is a problem. Clearly you need to read more if you don't know about the huge debate on inflation and INDEC, the people that have resigned and been fired on this issue.
Here's one article, of many. There are many, many more like this, both for Venezuela and Argentina. I travel to both countries a lot, have family and friends in both, and read the newspapers and watch TV (www.tn.com.ar) and listen to the radio stations online.
(http://www.infolatam.com/entrada
/argentina_inseguridad_inflacion_y_
corrup-5512.html)
"Los analistas señalan que la inseguridad se ubica desde hace años como una de las principales preocupaciones de los argentinos, pero la inflación ha crecido en los últimos tiempos como uno de los problemas más importantes para la población. Esta situación se produce en medio de una fuerte polémica por la presunta manipulación por parte del gobierno de las estadísticas de inflación que elabora el Instituto Nacional de Estadísticas y Censos (Indec), lo que también ha generado un conflicto entre los trabajadores del ente y sus autoridades."
Apparently, Gabriel, you don't even read enough to be able to provide your audience with the evidence to back up your claims.
If you want to boldly claim that real wages have actually fallen in Argentina in the last year, I want to see your evidence. You, unfortunately, don't provide any.
The quotes you provide tell us nothing. To verify the claims you make of 20% inflation and falling real wages, you need to provide verifiable statistical evidence.
All the jibber jabber in the world can't compensate for a lack of verifiable evidence.
Justin,
I don't want to spend too much time on the subtopics. If I find something you can use I'll post it.
The core point is that you claimed that inflation was not a big deal. I agree there are bigger issues but that does not mean inflation is irrelevant. Inflation concerns are rising across latin America and are particularly strong in Argentina and Venezuela.
If you are interested to learn more about this I strongly suggest you read up on what has happened with the INDEC which is a huge issue in Argentina.
I don't want to spend too much time on the subtopics.
Oh, I see, Miguel. So you relegate your bold unsubstantiated claims (of 20% inflation and falling real wages in Argentina) to the category of "subtopics" when you can't provide evidence to back up your claims.
That trick doesn't work, Miguel. Try harder next time.
Not a word about Venezuela. Would it be because he doesn't want to accept the economic situation there?
Not a word about Venezuela. Would it be because he doesn't want to accept the economic situation there?
Read the thread, genius.
That trick doesn't work, Miguel. Try harder next time.
Oops, I meant to direct that comment at Gabriel, not Miguel.
Justin,
I'm not sure, as they say in Argentina, "que bicho te pico". You have very aggressive approach for what is , after all, just some blog commentary.
It's clear this is not an area of your expertise. From what I see in your profile you are studying political science in New Mexico and are not even from Latin America so there is no reason why you should be an expert on the topic.
I like online debates but am not really interested in childish taunting.
In any case, if you are interested, here's another article you may find interesting:
http://www.cronista.com/notas/122372-el-ahorro-oficial-dibujar-la-inflacion-equivale-la-deuda-el-club-paris
oops, the link got cut off:
http://www.cronista.com/notas
/122372-el-ahorro-oficial-dibujar-
la-inflacion-equivale-la-deuda-
el-club-paris
From what I see in your profile...
Uh, Gabriel, my profile has nothing to do with the fact that you've yet to supply us with data supporting your assertions of 20% inflation and falling real wages in Argentina.
So, please, spare me the diversionary tactic.
The report you send claims there have ben "private studies" indicating that inflation was 20%, but until we're able to actually scrutinize the supposed studies, this is all just idle chatter.
ok ok you got me there. Sometimes I scan and don't read the whole thing because your texts are too long and boring. But this time you got it right with one exception. Inflation is already a problem down here
see link for venezuela stats for the pre-chavez era : http://www.nationsencyclopedia.com/Americas/Venezuela-ECONOMY.html
Quote : From 1988–98, real GDP growth averaged 2.5%. Inflation remained stubbornly high; between 1990 and 1996, consumer prices rose by an average of about 50% per year.
2.5% growth?? 50% inflation?? Much worse than any statistics under Chavez since 1999
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