The government in Buenos Aires is trying to get inflation under control with a price cap. While there is approval in the slums, criticism is growing from the economy.
“Fair prices” in a supermarket in Buenos Aires
Precios justos is on the shelves in the supermarket on Avenida Cordoba in Buenos Aires (article picture). The blue and white signs are intended to assure: The price for this product is “fair” and is therefore part of a price cap strategy with which the government of President Alberto Fernandez in Argentina is trying to control inflation and the constant price increases.
Between February 1st and June 30th, the prices for selected everyday products may only rise by a maximum of 3.2 percent per month. In December 2022 alone, however, the inflation rate in Argentina was almost 95 percent compared to the same month last year. This has dramatic consequences for people: the cost of living is rising much faster than wages and salaries.
Advertising marathon for Pricing Strategy
Whether in a taxi, on TV or on the radio: the government advertises its measure in commercials as a solution to the economic crisis. In order to monitor all of this, she relies on helpers from her own political camp who monitor and control the prices in the supermarkets. “This is a program aimed at reducing inflation and achieving price stability in order to restore the purchasing power of the population's income,” is the government's own definition. It's under pressure because there will be elections in Argentina in the course of the year. The poverty rate has risen under Fernandez, the poll numbers have fallen.
Shopping street in Buenos Aires
“Market distorting effect”
“Price controls are generally a problem due to their market-distorting effect. In Argentina, the government wants to counteract inflation. It's like trying to dam a raging river with a few pebbles,” says Lars-Andre Richter from the liberal FDP-affiliated Friedrich- Naumann Foundation in Buenos Aires critical of the measure.
Lars-Andre Richter from the Friedrich Naumann Foundation in Buenos Aires
“Officially, the producers and their alleged willingness to speculate are blamed for the high inflation rate. That is a clear distortion of the facts,” Richter told DW. “Responsible are the money printing machines that run almost around the clock. The branding is also misleading: presios justos, fair prices. This is about the moral exaggeration of a wrong economic policy.”
Demand for fair wages
Far out in the slums of the province of Buenos Aires, where there is often not even running drinking water in the shanty towns, the brutal price increases for basic foods and everyday necessities are felt even more severely than in the city. Poor priest Padre “Paco” Oliveira therefore does not go far enough with the measures taken by the precios justos. “This measure is good, but it's not enough,” says the Catholic priest, who works with other priests for the poor for the social needs of the local people, in an interview with DW.
Priest of the poor “Padre Paco” above all demands fair payment for the workers above the level of inflation
“A fair price is an agreement with companies so that they do not increase the prices for certain products beyond the agreed level. But that is far from enough. But people must be paid wages for their work that are above inflation,” demands Padre Paco.
“This strategy will fail”
Agustin Etchebarne from the think tank Libertad y Progreso is critical of the measure in an interview with DW: “Price controls cannot work because if a price is set that is below the free market price, the signals are distorted and producers are asked to pay less produce and encourage consumers to consume more.” This leads to bottlenecks and empty supermarket shelves. “And then when prices are released again, it turns out that the prices that go up the most are of course the ones that were controlled.”
Agustin Etchebarne is critical of the price strategy
Etchebarne therefore does not believe that it will be possible to get the prices under control: “The strategy of the fair Prices will of course fail, like all the other times price controls have been implemented around the world in the last 4000 years, and Argentina has a long history of failed price controls, always ending in social unrest, culminating in hyperinflation as on End of the Alfonsín government.” Alfonsin became Argentina's first democratic prime minister in 1983 after the end of the military dictatorship and was in office until 1989.