Cesar Martinez, 45, works full-time at a butcher in Buenos Aires, but last year he had to pick up other jobs until the end of the month. So when President Javier Mairay’s government publicly celebrated a new decline in inflation in June as a sign of a recovery economy, something didn’t add up.
“Money making money isn’t enough to buy everything, even the most basic,” says Martinez.
This sentiment was shared on the streets of Buenos Aires, the capital of Argentina.
Over a year and a half after taking office, Mairay was able to fulfill one of his campaign promises. We fundamentally reduced inflation, which reached a record 25% per month in December 2023. It is currently 1.6%, and the monthly rate is the lowest since April 2020.
In 2023, high inflation put a heavy burden on the Argentina population, with wages continuing to stagnate as prices for basic goods such as food, services and rent escalated monthly.
Argentina has a history of high inflation dating back to the 1940s, including several cycles of the latest hyperinflation in the late 1980s, noted by Mariana Heredia, a researcher at the National Council on Science and Technology Research (Conicet).
“Inflation is a global phenomenon, but in Argentina it was so constant that people tend to think that all issues are related to inflation. For the people here, stability is very important,” Heredia told Al Jazeera.
This is one of the reasons why the promise to tackle inflation helped us gain great support along the way for the presidency. He now achieves a lower rate is evidence of the success of his economic program, which radically cut public spending, including work in healthcare, education, social services and public infrastructure, to achieve financial surplus.
However, his program also included early nominal devaluation, which made the country more expensive in the dollar, thanks to the Argentine peso. This, combined with a sharp decline in actual wages, has hit the purchasing power of most of the population.
Argentina is currently one of the most expensive countries in Latin America, but also has the lowest salary.
Tackling inflation has been essential to starting to correct the disease economy in Argentina, but it proves not sufficient, experts say.
“Inflation isn’t everything,” Guido Zack, economy director at Fundar, a national think tank, told Al Jazeera. “It is important that low inflation rates are important, but (in Argentina) economic recovery is very mixed between the economy and population sectors. The majority of the population still has low purchasing power, the speed of informal jobs is increasing, and the poverty rate is still very high.
Other analysts have criticized aspects of the methodology used to calculate inflation in Argentina. They say the basket of goods and services used to measure it, developed in 2004 and updated in 2016, does not accurately reflect current consumption patterns. This includes the percentage of income spent on home payments, which increased 4.5% in the Buenos Aires area, where renters are crowded with tenants, in June alone. A September poll from Inquilinos Agrupados, a tenant survey twice a year, shows that renters spend an average of 44.5% of their income on rent.
“Economic stress”
The discrepancy between some economic indicators and what people experience in their daily lives is what the Argentine Catholic University’s social debt observatory calls “economic stress.” It is the realization, or reality, that most salaries are not sufficient to cover basic living expenses.
This is especially pronounced in the country’s growth in personal borrowing. According to a recent report by the Institute for Social and Economic Statistics (Estadisticus y entencias socials y economy – ietse), 91% of Argentine homes have some kind of debt.
“Sales have slowed over the last few months,” butcher Martinez said. “People are always looking for discounts, and they tend to buy small quantities for the day and pay with credit cards. It’s hard to find someone to pay with cash.”
People’s complaints about the economy are also evident on the streets of Buenos Aires. There, there is an increasing number of protests against cuts to public funds led primarily by pensioners.
Every Wednesday, pensioners meet before the legislature in Buenos Aires to demand an increase in the state’s pension. The current pension for 5 million people is $300 a month, below the minimum living wage. Milei has pledged to reject the bill approved by Congress with an increase in pensions.
Raul Maldonado, 68, retired in 2020 after working as a lathe operator in the factory for 35 years. He’s making more than the lowest pension right now.
“The money I make lasts for 15 days. If it doesn’t help my family, I won’t survive,” he says.
Long game
As Milei has committed to keeping the current economic plan going, the question is whether measures can be adopted to curb inflation and improve other metrics.
According to Heredia, the types of anti-inflammatory programs focusing on reducing public spending and cutting back on highly valued currencies are similar to those implemented in Argentina in the past, but did not work in the long run.
“Initially, these types of programs can provide some initial relief to people. They generate some economic bounce and to some extent increase revenues in some high-revenue sectors. However, in the middle period, costs are shown when opening up an economy of imports that affect local production and impact on job markets.”
For Zack, the key to a long-term economic recovery is the adoption of measures aimed at improving some of the structural challenges facing Argentina, which will have a negative impact on the economy.
In it, he lists the complex taxation system of the country, high levels of bureaucracy, lack of investment in public infrastructure such as roads connecting the country, and low exchange rates and openness to imports.
“Even if Argentina maintains low inflation, it’s a complicated cocktail,” Zach said.
