Custom «Argentinean Inflation» Essay Paper Sample

Introduction

In March 2011, the inflation rate in Argentina was reported to be at 9.7 percent. But over the years, from 1944 to 2010, the average rate of inflation in Argentina was 215.46 percent. In March 1990, it reached a historical high of 20262.80 percent and also a record low of -7 percent in February 1954. This essay will examine the inflation rates in Argentina over the years and the relationship of inflation with the country's economy. We will also look at inflation rate trends in different data sets with support from statistical evidence.

Inflation

Inflation is defined as the general rise in prices of various goods when measured against a certain standard level of purchasing power. Inflation is measured by measuring two sets of good's prices at different set of points and then computing the increase in cost which is not reflected by an increase in quality (Argentina inflation rate).

Importance of Argentina inflation data

Argentina's inflation rate is taken as measure of the country's economic health and therefore a high rate of inflation means that there is gradual warming up of the economy and due to uncertainty it pertains, adversely affects the economy. The country has been subjected to backlash in 2000 and hyperinflation in the 1980s (Dal Santo D., 2010). Due to the economic cycle in each country, due to inflation in Argentina the Argentinean peso (currency) gets revalued. An example was in early 2007 when there was a rise in export and as such was recorded at 11 percent as compared to in 2006 when it was 9.9 percent (Argentina inflation).

In 2010, Argentina's annual inflation rate stood at 10.9 percent which was lower than previous estimates of 25 percent in the same period. Inflation pressures in Argentina have been rising within the economy and as such eroding income potential for both consumers and businesses. Argentinean inflation for the past six years is shown in the fig. 1 below. The figure shows the relationship between inflation and the country's GDP with that of the percentage growth over a period of six years. It shows inflation rates easing up from slowly in 2005-2009 before starting to rise again in 2010.

Implications of inflation rates in Argentina

Inflation is a key indicator in Argentina with many economic implications especially that of economic wellbeing of the economy. It has been found that in inflation estimates are incorrect, and then the expectations of high inflation will erode purchasing power which will eventually undermine the spending potential of consumers and reducing potential profits for businesses. Also, public assumptions of higher official inflation drive and increases prices, increasing inflationary pressure.  We see how inflation affects consumers and businesses in Argentina;

• Higher spending on food helps to drive up food prices which are already affected by global supply shortages. In Argentina for example, food prices are expected to have risen by a whopping 40 percent in 2010. The resulting household costs serves to erode consumer disposable income. In 2010 alone, the consumer expenditure on food and non-alcoholic beverages accounted for greatest consumer expenditure at 20.2 percent while housing came next at 15.2 percent.
• Pay rises are initially calculated on the basis of official inflation figures but after public and private workers protested, pay rise was negotiated on the basis of unofficial rate. For some of the companies which negotiated on the official rates, it means that consumers effectively received pay cuts of about 15 percent. This eventually reduces the annual disposable income of around $5,108 per capita.

Future trends in Argentina inflation

We realize that there is a healthy growth of the GDP. This trend usually boosts FDI's but the biggest worry is that of projected inflation figures. Argentina's inflation is expected to continue rising in 2011 and even 2012. The government forecasts an inflation rate of 12.1 percent in 2011 although private analysts estimate that inflation will be higher than that and even reaching a high of 30 percent. The effects will be;

• The ongoing inflation will spiral will slow down Argentina's economic growth forecasted to grow at 5 percent in real terms this year down from 8.5 percent in 2010.
• The ongoing worldwide constraints on food will continue to keep global prices high and although Argentina has recovered from the 2009 drought, agricultural strikes in early 2011 will lead into mid-year harvest and as such disrupt supply (Euromonitor international).

Due to these reasons, the government intends to seek to restore credibility in calculating inflation rates by working with IMF and create a new index especially that dual inflation rates always surface. Introducing such a measure will greatly help to provide reassurance from the IMF and help restore public confidence in official figures. The government is also seen to it's maintain social spending at current levels so as to retain its support during the next general election in October this year contributing to rising inflation of 2011 (Euromonitor international).  

Conclusion

High rates of inflation in have been a weakness of the Argentinean economy for decades and unfortunately it is increasing again.  The highest level since 2002 have been recorded which caused devaluation and sent the economy into a tailspin. With upcoming elections in October, there are fears that inflation will soar in 2011.  Unfortunately for the country, high inflation rates do not auger well for the economy. Furthermore statistics indicate that inflation will increase this and even higher in 2012. But the government is seeking ways of gaining public confidence in calculating inflation (by involving the IMF) as there are conflicting data on inflation rates.