With The Highest Inflation Levels In 20 Years, Is Argentina Heading To A Hyperinflation?

Inflation in Argentina soared to 6.7% in March, as reported this week by the INDEC (National Institute of Statistics and Census), representing the highest increase in 20 years. So far in 2022, the South American country has already accumulated a CPI variation rate of 16.1%.

At the same time as the price increase, the blue dollar (unofficial, black market rate) fell to $195 pesos per dollar at the time of this publication from the maximum peak of $222.5 pesos on Jan. 27, 2022. In parallel, the official, state-regulated dollar is trading at $112.92.

Argentina's inflation is the result of the large monetary spending the country is doing to finance public spending and is part of a large relative price update this country is going through.

With an unemployment rate of 7%, a large part of Argentine workers have salaries that place them in a situation of poverty despite having a formal job. This indicates that not only do the prices of products and commodities need to be updated, but salaries must also grow in the medium term.

Many economists and opposition politicians understand the risk of hyperinflation is very high. In addition to the poor management of the economy, a divided and weak government encourages a fall in the demand for money, increasing the inflationary effects.  

Javier Milei, current legislator and future candidate for president, states "The inflation of the last 12 months is 55%, if you look at the results of the first quarter of 2022, annualized it would be 80%, annualized to March inflation we are at 117% and if you correct for the exchange rate gap it shoots up to 360% per year."

In many parts of the world, these levels of inflation are considered hyperinflationary, although not in Argentina, which used to be two digits. Whether or not the government of Alberto Fernandez will be able to partially curb inflation or whether it will continue to rise remains to be seen, but if so, a hyperinflationary economy would pave the way to dollarization in Argentina.