Argentina Inflation Speeds Up, Prompting Government Crackdown

Argentina’s inflation accelerated last month at the fastest pace since President Alberto Fernandez took office in late 2019, prompting the government to tighten its unorthodox controls over companies. Consumer prices rose 4.2% in March from February, according to the median forecast of economists surveyed by Bloomberg ahead of Thursday’s release. Economy Minister Martin Guzman said Wednesday that inflation should cool in April after reaching its peak for the year last month. Consumer prices in Argentina have stayed above 3% a month since Oct.

Double-digit inflation has been a persistent problem for recent administrations in Argentina. To combat it, Fernandez’s government has relied on unorthodox tools including price caps and agreements, rejecting traditional monetary options used by most countries. The recent spike, with the inflation rate running at about 40% annually, threatens to derail Argentina’s fragile economic recovery six months before key midterm elections. On Wednesday, the government ordered stricter enforcement of price controls and said it would hire as many as 500 inspectors to ensure businesses are complying with regulations.

Guzman asked for “more cooperation” by companies to try to reach the government’s 29% annual inflation target for the end of 2021. Economists say the rate accelerated to almost 42% in March. The clampdown on prices has also led to an uneasy relationship between Fernandez’s government and businesses. U.S. companies recently asked his administration to ease up on price controls, calling the regulatory environment “hostile, restrictive and unpredictable.” Argentina’s statistics agency INDEC is set to release March’s inflation rate at 4 p.m. on Thursday.

Source: https://www.bloomberg.com/news/articles/2021-04-14/argentina-inflation-speeds-up- prompting-government-crackdown

• In light of the above article, discuss some of the negative effects of inflation that Argentina may experience (12 Marks)
• Attempting to decrease inflation may result in increasing levels of Defend the above claim and explain the type of unemployment that this may result in. (13 Marks)
• With the aid of a diagram, describe the traditional monetary policies that can be used to control (25 Marks)

Answers to Above Economics Questions

Inflation is defined as a rise in the prices of goods and services in an economy. There are various causes of inflation which includes rising wages to increase aggregate demand to an increase in the supply of money. A higher inflation level has numerous negative effects which can affect the people in an economy. In the given case study of Argentina, it is evaluated that the inflation level has accelerated tremendously in Argentina, and this will have negative effect in the form of loss of overall money value, a rise in inequality level in the economy because higher inflation would hurt low income household badly, and there would also be the negative impact in the form of increased cost of living in the economy. The other negative effect of high inflation includes …..