Hyperinflation pressure grows on new Argentine government

Sky-high inflation has become a major concern for people in Argentina and the nation's new government led by President Javier Milei. The soaring cost of living is expected to severely impact poverty levels in the South American country and many Argentines find it increasingly difficult to make ends meet.

Official data released earlier this month showed the annual inflation rate reached 211.4 percent in 2023 — the highest level in 32 years.

"Argentina has been suffering from chronic, long-term inflation that has continuously worsened over the years. This is due to rising government spending which has grown very strongly year after year," Agustin Monteverde, director at economic consultancy Massot Monteverde & Asociados, said.

"The previous government left this administration with several ticking time bombs ready to explode. State expenditure has grown enormously, driven by the uncontrolled money printing used to fund interest-bearing debt liabilities. They also left the country without foreign reserves — in fact, with net reserves deeply in the red," Monteverde said.

Milei, who took office on Dec 10 and quickly implemented a series of shock economic measures, is under increasing pressure to curb Argentina's spiraling inflation.

Inflation was a key issue in Milei's successful campaign, with the president vowing drastic action. However, some of Milei's early shock measures may have exacerbated the problem in the short term, just as he anticipated.

During his inauguration speech, Milei acknowledged inflation could rise further as he moved to correct economic imbalances. He had publicly stated that his goal was to reduce monthly inflation to around 25 percent.

"Given that monetary policy operates with a time lag of 18 to 24 months, even if we stop issuing money today, we will continue to feel the effects for months to come. Even if we stop printing money today, we will still be dealing with the consequences of the previous government's policies," he warned on Dec 10.

Years of soaring inflation in Argentina have inflicted financial hardship on citizens in their daily lives. Business owners across the country find it a constant challenge to set prices for goods and services amid unpredictable increases, while homemakers are unsure how much they will have to pay for staples as the cost of food and household items fluctuates wildly from week to week.

Cristian Iturralde, a writer, lecturer and historian, said the situation often impacts the middle class more than the upper or lower classes. He said vulnerable groups enjoy some social protections for now that can soften the blow.

Iturralde said that fuel prices have increased over 100 percent in just two weeks and basic food staples like rice and noodles have in many places tripled in cost over the same short period.

He said when even noodles and rice that have historically been affordable to all socioeconomic classes are now spiraling up to these extremes, it's very hard on the everyday people.

Meat prices skyrocketed through 2023, with costs surging over 40 percent in December alone. Cumulatively, meat inflation reached a staggering 307.3 percent for the full year. However, January has seen meat prices begin to decline despite the new government lifting a ban on exports of popular cuts to foreign markets.

The previous government had barred exporting popular beef cuts to protect domestic availability and affordability.

"If Argentines support President Milei's proposed economic, financial and fiscal adjustment program, there is an opportunity for the country to get out of this dire situation," Alberto Bernal, chief emerging markets and global Strategist at XP Investments, said.

"Historically speaking, when left unaddressed, financial imbalances of this magnitude tend to resolve themselves through an even steeper surge in inflation that destroys people's purchasing power," Bernal said.

He said the inflation Argentina is seeing is a direct consequence of the irresponsibility of the previous administration. "They dramatically increased spending without corresponding revenue sources, leaving money printing as the only means to finance the deficit," Bernal added.

Experts like Monteverde foresee inflation remaining staggeringly high over the coming months.

Monteverde said that for the next three or four months at least, inflation will remain extraordinarily high. "But we believe that later this year, as the monetary absorption measures are now being put in place, combined with spending cuts, improved fiscal resources, and the greater economic vitality from regulatory reforms, the inflation rate will begin to slow down mid-year," he said.

The writers are freelance journalists for China Daily.