Nov 23, 2010
Hearing the word Inflation in the developed world, tends to conjure some vague idea of economic problems facing the developing world. But for Argentina a highly developed nation, inflation is a very real problem, that affects every Argentine. Every time you go to the local market to buy food, or out to eat, or look to buy some clothes, you see how the prices are constantly increasing. Inflation occurs when the price of good and services in general rise over a period of time. This leads to each unit of currency buying less and less goods. Historically, Argentina has had very high inflation rates. Between 1975 to 1991 the annual inflation rate never once dipped below 100%.
This week the government released a new report on inflation in the Argentine economy. The report claims that prices have risen about 11% over last year. This claim however is being challenged from many different groups, all of them asserting that the government of Argentina is again denying, or at least belittling a serious economic problem as it has consistently in the past. Further adding to the outrage is the comments of Economy Minister Amado Boudou who said last week that inflation “is not an issue.” He further fanned the flames by stating that inflation only affects those in the middle and upper classes, and not the poor. Critics immediately pointed out that this is contrary to the most basic of economic theory. Even after a his superior Cabinet Chief Anibal Fernández, commented that Boudou’s statements were incorrect, the critics still disagree with the findings.
One economist in particular has taken issue with the governmental report…going so far as to have develop a new way of measuring inflation rates in order to contradict the government rates.
Cavallo, who has a Ph.D. in economics from Harvard and is a professor at the Massachusetts Institute of Technology’s Sloan School of Management, has developed an ingenious way of measuring what he says is Argentina’s real inflation rate.
To estimate inflation in Argentina, Cavallo created the website Inflación Verdadera, which tracks the price of 150 products at two supermarkets in Buenos Aires.
The site which is updated daily, is based on data from the “Billion Prices Project“, run by Cavallo and MIT colleague Roberto Rigobon. By collecting prices from hundreds of online retailers on nearly 5 million different items around the world, According to the site, food and beverage prices are up about 33% from a year ago. That’s about three times the government’s official rate. Along with a basic collection of goods termed “canasta básica,” which the government uses to calculate poverty levels. This index according to the site is also up a staggering 29.5%.
Cavallo started the website while working on his Ph.D. in early 2007. He says he felt “The government started lying about statistics in early 2007. In 2007 I kept reading reports saying inflation was more than what the government said it was. So I developed this software to measure prices online. I used it for my academic project and I launched the website February or March of 2008.”
After discussing what he feels are the reasons for Argentina’s current inflation problem, (Local causes, and governmental policies) he adds: “Understanding the cause and solutions for inflation is beyond the scope of this paper, but having a credible price index is a first step in that direction.”
Given Argentine history, that makes this issue something that everyone should find interesting.
Not where we’re going to stop, according to Martin Redrado, this increase would produce nothing more than the food sector, but the effects of these wages, means that the increase is general and the growth continues, not until then. I think we must look for a stop to this, by producing competitive imports, but do not think this government to do it.