Argentina Inflation........Bloomberg

Dad Can’t Buy Daughter Shoes as Argentine Currency Falls

Feb 3, 2014

 

Jorge Contrera checked a pair of soiled shoes from top to bottom, tried to buff them with his shirt sleeve, then paid 40 pesos ($5) for his 8-year-old daughter’s present. Before Argentina’s devaluation last month, he planned to surprise her with a new pair.
“Do you know how I feel buying my daughter used shoes?” said 29-year-old Contrera, a welder who’s currently working as a delivery man. “The new shoes just went up and I don’t have the cash.”
Like Contrera, many Argentines see their standard of living falling as the fastest pace of inflation in a decade erodes their purchasing power and confidence in President Cristina Fernandez de Kirchner’s economic policies. Last month’s 19 percent devaluation of the peso, which drove up prices on products from cars to refrigerators, highlights Fernandez’s dilemma.
If she adopts unpopular belt-tightening measures, she could face social unrest, said Mariel Fornoni, director of polling firm Management & Fit.
“It’s a critical moment for the government and there’s no reason to believe things will get better,” Fornoni said in an interview. “There’s a real risk of growing protests in coming months.”
Since Jan. 27 the government eased some currency restrictions and raised interest rates by more than six percentage points in an effort to reduce dollar demand that has drained central bank reserves by 34 percent to $28 billion over the past year.

Capital Flight

Real interest rates remain negative and unless the government cuts spending, including energy subsidies, Argentina’s vicious cycle of inflation, capital flight and devaluation will continue, Mark Mobius, chairman of San Mateo, California-based Templeton Emerging Markets Group, wrote in a note to clients on Jan. 30.

The peso’s plunge this year is the largest among 169 currencies tracked by Bloomberg, and investors have dumped government dollar bonds that have lost about 15 percent, according to data compiled by Bloomberg and JPMorgan Chase & Co.’s EMBIG index. The cost to protect the nation’s debt against non-payment over five years with credit-default swaps has jumped 11.7 percentage points to 28.2 percent, implying an 87 percent probability of default, the highest in the world.

Ricardo Villalba, a 37-year-old kitchen hand, came to buy meat and grapes at a market in the Constitucion neighborhood of Buenos Aires. After balking at the 30 pesos-per-kilo price of grapes and a jump in beef to 55 pesos, he changed his mind.
“Of course I’m unhappy, I’ll eat a fried egg tonight,” Villalba said.

Argentina’s annual wage bargaining period will be key for Fernandez to keep part of her base content. Police strikes over wages in December triggered violent looting in at least half of the country’s 23 provinces. Labor unions are preparing for wage negotiations in March

Attempts to contain inflation through price caps and subsidies, which have ensured some cost stability for basic foods, energy and transport, are becoming more expensive and less effective.

Government attempts at regulating prices on basic goods have a limited impact, with supermarkets agreeing to cap 194 of an estimated 40,000 products, said Cohan of Elypsis.

Empty Shelves

The specially-marked items from milk to sugar and beer are not always available, and many smaller grocery stores don’t participate.
At a Carrefour SA supermarket in the southern zone of the capital, only one bottle of “fixed price” vegetable oil was available at 7.54 pesos. Around the corner, a fully stocked grocery store sold the same oil at a 33 percent markup.
In December, half of Argentines said they expected their personal economic situation to worsen in the coming months, the highest percentage since August 2012, according to the latest survey by M&F.

Price increases and a tax  may particularly hit the auto industry.
Fiat SpA said it sees “double digit” declines in Argentina’s car market in 2014, according to a presentation on its fourth-quarter results posted on its website Jan. 29.
“After how prices increased for some of the cars, you’d have to be crazy to buy now,” said Ramon Herrera, who runs a car dealership named after his family. He expects sales to drop about 50 percent this year.


me......earlier Venezula;
Inflation, social unrest...............these will play in big way for big countries.