Turning to bartering as inflation rages out of control

  • Living
  • Wednesday, 28 Sep 2022

A woman pays with a 1,000 peso bill at a bakery, as the inflation rate in Argentina rises to 71%. Photo: dpa

While much of the world is discovering just what high inflation means, it’s nothing new for the people of Argentina.

Prices have rarely been stable in the South American country during the past 50 years. In the late 1980s, the inflation rate skyrocketed to a staggering 3,000%. Annual inflation has remained above 30% since 2018.

Recently, inflation again hit new heights, reaching 71% thanks to Russia’s war on Ukraine, supply chain disruption and high government spending to overcome the pandemic.

Analysts expect the country’s inflation rate to soar to around 90% by the end of this year. Prices rose 7.4% in July alone, compared to the previous month.

“We are making all the necessary efforts to solve the inflation problem,” President Alberto Fernández has said, announcing the temporary freezing of prices and wages to stop the value of money from plummeting further.

New Economy Minister Sergio Massa is also determined to fix the problem. “One of the central themes of my term in office will be the fight against inflation,” he said, after replacing his predecessor who barely lasted a month on the job.

“We must act with all determination against inflation, because it is the biggest factory of poverty in this country. We in Argentina are suffering from it and the world is suffering from it,” Massa said.

The president tried to reassure the public, saying, “I am aware of the problem and I am fighting every day to find a way out.”

But columnists are casting doubts. “It would be easier to digest the inflation rate if the government understood the causes, proposed a solution and appointed the best people to lead the process,” wrote La Nacion, a newspaper critical of the government.

Besides global developments, domestic factors also play a role. In order to finance the budget deficit, the central bank keeps on printing fresh money, reducing the value of the peso.

To keep up with soaring prices, wages and salaries rise every six months in Argentina, most recently by about 25%.

But those wage increases often lag behind inflation and workers are stuck trying to manage their dwindling purchasing power. Some 37.3% of people in the once-wealthy country are now considered poor.

People have found ways to deal with the problem, or at least cushion the impact. Debts shrink over time due to the falling value of the peso, therefore customers stretch out their payments for products over as long a period as possible.

Shops offer consumers the chance to pay in instalments, particularly for larger purchases, without any additional interest, effectively giving them a discount.

Even when you buy your groceries at the supermarket, the cashier always asks if you want to pay in a series of instalments.

Meanwhile, in the poorest neighbourhoods of Buenos Aires, people are quitting the cash economy altogether and switching to bartering.

They arrange to meet up in clubs or outdoors somewhere to trade clothes for food, or nappies for building materials.

But the constant price rises create a lot of uncertainty, even with such strategies.

“Smaller shops and big companies don’t know at what price to buy and sell their products,” economist Dante Avaro said recently on the radio.

Prices are raised every month, but often there are significant differences between one shop and the next, meaning Argentinians spend a great deal of time comparing costs and trying to find special offers.

The US dollar is the most important tool they have to fight inflation. The rapid pace of inflation would tear through any savings held in pesos so Argentinians invest every surplus peso they have in US dollars.

No other country in the world outside the United States has as many dollar notes in circulation as Argentina. It is estimated that Argentines hold US$200bil (RM919bil) in cash, 10% of all dollar notes in circulation worldwide and 20% of all dollars outside the United States.

However, because Argentina has hardly any dollar reserves left, people are only allowed to buy US$200 (RM919) a month at the official exchange rate.

On the black market, the dollar costs more than twice as much. In down town Buenos Aires, traders lure customers into empty buildings known as cuevas, or caves, to exchange pesos for dollars.

Meanwhile in the more elegant suburbs, money exchangers deliver dollars free to people’s doors, after negotiating the price on WhatsApp. – dpa/Denis Duttman

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