May 24th, 2024

Argentina reports its first single-digit inflation in 6 months as markets swoon and costs hit home


By The Associated Press on May 14, 2024.

A youth picks through discarded produce at the central market for fruit and vegetables in Buenos Aires, Argentina, Friday, May 10, 2024. (AP Photo/Natacha Pisarenko)

BUENOS AIRES, Argentina (AP) – Argentina’s monthly inflation rate eased sharply to a single-digit rate in April for the first time in half a year, data released Tuesday showed, a closely watched indicator that bolsters President Javier Milei’s severe austerity program aimed at fixing the country’s troubled economy.

Prices rose at a rate of 8.8% last month, the Argentine government statistics agency reported, down from a monthly rate of 11% in March and well below a peak of 25% last December, when Milei became president with a mission to combat Argentina’s dizzying inflation, among the highest in the world.

Although praised by the International Monetary Fund and cheered by market watchers, Milei’s cost-cutting campaign and deregulation have in the short term been squeezing families whose money has plummeted in value while the cost of nearly everything has skyrocketed. Annual inflation is at 289.4%

“People are in pain,” said 23-year-old Augustin Perez, a supermarket worker in the suburbs of Buenos Aires who said his rent had soared by 90% since Milei deregulated the real estate market and his electricity bill had nearly tripled since the government slashed subsidies. “They say things are getting better, but how? I don’t understand.”

Milei’s social media feed in recent weeks has become a stream of good economic news: Argentine bonds posting some of the best gains among emerging markets, officials celebrating its first quarterly surplus since 2008 and the IMF announcing Monday it would release another $800 million loan – a symbolic vote of confidence in Milei’s overhaul.

“The important thing is to score goals now,” Milei said at an event at the presidential palace Tuesday. “We are beating inflation.”

Even so, some experts warn that falling inflation isn’t necessarily an economic victory – rather the symptom of a painful recession. The IMF expects Argentina’s gross domestic product to shrink by 2.8% this year.

“You’ve had a massive collapse in private spending, which explains why consumption has dropped dramatically and why inflation is also falling,” said Monica de Bolle, a senior fellow at the Peterson Institute for International Economics who studies emerging markets. “People are worse off than they were before. That leads them to spend less.”

Signs of an economic slowdown are everywhere in Buenos Aires – the lines snaking outside discounted markets, the empty seats in the city’s typically booming restaurants, the growing strikes and protests.

At an open-air market in the Liniers neighborhood, Lidia Pacheco is drawn to a garbage dump near the vegetable section. The 45-year-old mother of four rummages through the pungent pile to salvage the tomatoes with the least mold.

“This place saves me,” Pacheco said. Sky-high prices have forced her to change her diet and habits to the point of giving up yerba mate, Argentina’s ubiquitous national drink brewed from bitter leaves. “Whatever I earn from selling clothes goes to eating,” she said.

Retail sales in the first quarter of 2024 fell nearly 20% compared to the year before, a clip comparable to that of the 2020 pandemic lockdowns. The consumption of beef in Argentina – once a hallowed staple – dropped to its lowest level in three decades this quarter, the government reported, prompting panicked editorials about the fate of Argentina’s national psyche.

“Now I buy pork and chicken instead,” said Leonardo Buono, 51-year-old hospital worker. “It’s an intense shock, this economic adjustment.”

Milei, a self-proclaimed “anarcho-capitalist” and former TV personality, warned everyone his policies would hurt at first.

He campaigned brandishing a chainsaw to symbolize all the cutting he would do to Argentina’s bloated state, a dramatic change from successive left-leaning Peronist governments that ran vast budget deficits financed by printing money.

Promising the pain would pay off, he slashed spending on everything from construction and cultural centers to education and energy subsidies, from soup kitchens and social programs to pensions and public companies. He has also devalued the Argentine peso by 54%, helping close the chasm between the peso’s official and black-market exchange rates but also fueling inflation.

Prices in shops and restaurants doubled in the first three months of 2024, the government statistics agency reported, reaching levels comparable to the U.S. and Europe.

But Argentine wages have remained stagnant or declined, with the monthly minimum wage for regulated workers just $264 as of this month, with workers in the informal economy often paid less. Today that sum can buy a few nice meals at Don Julio, a famous Buenos Aires steakhouse. Some 60% of the country’s 46 million people now live in poverty, a 20-year high, according to a study in January by Argentina’s Catholic University.

Despite rising discontent among many Argentines, the president’s approval ratings have remained high, around 50%, according to a survey this month by Argentine consulting firm Circuitos – possibly a result of Milei’s success blaming his predecessors for the crisis.

“It’s not his fault, it’s the Peronists who ruined the country, and Milei is trying to do his best,” said Rainer Silva, a Venezuelan taxi driver who fled his own country’s economic collapse for Argentina five years ago. “He’s like Trump, everyone’s against him.”

Argentina’s powerful trade unions and leftist political parties have pushed back against Milei with weekly street protests, but haven’t managed to galvanize a broad swath of society. That could change – a massive protest against budget cuts to public universities visibly hit a nerve, drawing hundreds of thousands of people and rattling the government.

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Associated Press writer Almudena Calatrava contributed to this report.

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