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Thu Dec 17, 2015, 10:02 AM

Macri's devaluation could have major impact on Argentine prices.

Last edited Thu Dec 17, 2015, 10:33 AM - Edit history (1)

The decision to lift currency restrictions announced yesterday, and where precisely the exchange rate will settle after trading begins today, could have a major impact on prices. Prices have in fact already risen since the November 22 runoff in light of President Mauricio Macri’s repeated pledges to undo the Kirchner-era policy of limiting access to U.S. dollars and maintaining a crawling-peg devaluation.

While official inflation estimates have not been released for November, prices since then for certain basic goods have spiked between 20 to 30% according to major consumer union and business chambers. Supermarkets and retailers have already been bracing for what many believed would be a sharp devaluation of the peso once Macri took office.

Finance Minister Alfonso Prat-Gay said yesterday during the announcement that “the law of the jungle would not apply to consumer prices” following any shifts in the exchange rate in today’s trading. But announcements that beef exports will no longer have any kind of restrictions sent prices soaring before Macri took office, with some reporting increases of 30%; the cut of meat known as asado would be priced between 100 and 130 pesos a kilo ($3 to $4 a pound) during the summer holidays. The mid-range cut is a standard on Argentine grills. Agriculture Minister Ricardo Buryaile said on Monday that the government would “try” to bring prices back to what they were in November.

After a series of increases in the price of new automobiles last month (with some reaching as much as 40% over the last model year's basis) auto industry leaders have suggested the a devaluation would not have a major impact in the short-term. Manufacturers of industrial inputs for finished products, however, have already been increasing prices to reflect an exchange rate at 16 pesos to the dollar (rather than at the roughly 10 peso rate prevailing until yesterday).

The price of flour has also jumped by 100%, as producers have expected that increased exports and reduced export duties will result in greater prices for the products. Emilio Majori, who represents bakeries in Buenos Aires Province, said that the price of a 50-kilo wholesale bag of flour for bakery use had jumped from a range of 110-130 pesos to 240-250 pesos after the runoff and that as result bread would likely retail around 30 pesos per kilo (around 50% higher).

Unions have already taken note of the price increases, and Antonio Caló of the UOM metalworkers’ union (the principal union leader within the CGT, Argentina's largest trade federation) has said that the loss of purchasing power will have to be compensated. Caló said last night that his union will be seeking a 5,000 peso end-of-year bonus in light of what he expects to be a 50% devaluation. Even Hotel and Restaurant Union leader Luis Barrionuevo, who endorsed Macri, is now demanding a 50% raise.

Whether a devaluation would affect the price of consumer goods emerged as a sharp debate ahead of the presidential runoff, with economists supporting center-left candidate Daniel Scioli insisting it would while right-wing economists supporting Mauricio Macri contending companies had already adjusted the prices of their products according to the black-market exchange rate. Scioli was narrowly defeated by Macri in the runoff.

“What (Macri’s economists) are arguing is that 'if food is not imported then why would it be made more expensive by a devaluation?' But the problem is that most basic goods can also be sold abroad. A bottle of cooking oil costs 10 pesos in an Argentine supermarket and one dollar abroad; but a sudden devaluation would mean that now a producer can get 15 pesos for that same bottle by selling it in Europe, for instance. Why would he then keep selling it at 10 pesos here?” said Daniel Scioli’s chief economic adviser Miguel Bein.

At: http://buenosairesherald.com/article/205128/measure-could-have-major-impact-on-prices

A real windfall for dollar hoarders though - including Finance Minister Prat-Gay himself. http://www.democraticunderground.com/110845605

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Response to forest444 (Original post)

Thu Dec 17, 2015, 05:12 PM

1. Raising the prices for groceries, cars, etc.,etc. will only hurt, handicap the poor.

Reading the destination for many of the finished products will be overseas sales makes moral criminals of the business community involved in exporting them, but not criminals by laws written for the 1%.

Argentina has already lived in hell before today. What a shame they came so far only to be headed back there under the control of this dictatorship supporter.

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Response to forest444 (Original post)

Response to Judi Lynn (Reply #2)

Fri Dec 18, 2015, 11:32 PM

3. That would be in nominal GDP per capita terms.

Even so, GDP will likely slip 2 to 3% this year in real terms - the first decline since 2002.

There's been much heated debate among economists over the last 30-plus years about the virtues of using nominal GDP and GDP per capita figures, since they don't take into account over or undervaluation of different currencies. Nor does it, of course, take into account average living conditions and income distribution.

About 30 years ago, then, the use of what's referred to as 'Purchasing Power Parity' became widely used to take into account the differences in costs between one country and the other.

A family of three in Argentina, for example, earning 1,000 dollars a month at the new rate of 14 pesos lives a decent, middle class life. One earning 2,000 dollars saves an average of 500 dollars a month, according to banking data. This is especially true if they live outside Buenos Aires.

It goes without saying that a family of three in the U.S. earning 2,000 a month is poor; one earning 1,000 would be indigent outright, without public assistance. In countries like the U.K. and Japan, income needs in dollars terms are even higher.

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Response to forest444 (Reply #3)

Sat Dec 19, 2015, 12:02 AM

4. I'm seeing what you mean. It helps a lot to get some perspective, for sure.

I looked up the dictator's Wiki, was startled to read about his life. Unbelievable!

I was also surprised to see he has done some banking at the Riggs Bank in Washington, the same bank where Pinochet stashed a lot of [strike]Chile's[/strike] his money. His job also didn't ever pay him enough to allow him to have saved up that much. Riggs is starting to sound a little strange, by now, if it has been actually the bank of torture-loving dictators.

Thanks for making some points about viewing income levels. Very helpful.

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Response to Judi Lynn (Reply #4)

Sat Dec 19, 2015, 12:35 AM

5. Sure. And besides the corruption, a country's GDP structure should also be considered.

Last edited Sat Dec 19, 2015, 08:29 PM - Edit history (1)

In the case of Equatorial Guinea, for example, fully 89% of its GDP is simply oil. Crude, unrefined oil. Private consumption (persons and businesses) is merely 17% of GDP. This, of course, is not the global norm.

In Argentina's case, 65% of GDP is private consumption; 17% fixed investment (construction, machinery, and technology). That's more like what you see in a typical developed or semi-developed economy.

Distribution should also be considered: in Argentina, 60% of the population is in the middle or upper class (Pew Research). But because most of Equatorial Guinea's GDP is oil income that goes anywhere except its people, 77% are poor according to their own poverty line definition. Same per capita GDP, in theory; vastly different outcomes

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Response to forest444 (Reply #5)

Sat Dec 19, 2015, 06:36 PM

6. Like the difference between night and day. GDP 17%, on one hand, 65% in Argentina.

Someone was playing a little sleight-of-hand with the numbers, leading to greater confusion.

Thanks for the help, forest444.

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