Inflation in Argentina at historic high 21%; government targets 5% by 2019

By Staff Writer

Jan 17, 2016 04:04 AM EST

The soaring inflation to record level in Argentina is making day-to-day life very expensive for people. With inflation rate reaching 21 percent, Argentines are paying everything in installments right from even buying a dozen eggs to plan ticket. The annual inflation may reach 25 percent in 2016 and government hopes to bring it to five percent by 2019.

Argentina's President Christina Fernández de Kirchner is taking every possible measure to revive the economic growth. The consumer spending-led economic growth worked well during 2003 to 2011 as gross domestic product (GDP) rose at an average of 7.5 percent annually, according to data from International Monetary Fund (IMF).

International Business Times reports that along with inflation, wages too rose during the period. The annual GDP rate dropped from 8.9 percent to two percent in 2011. Subsequently, the GDP rate recovered to 3.4 percent in 2013. The unstable government and Argentina's foreign policy were the prime reasons for economic challenges, observes World Bank. 

Argentina government may end to subsidies on electricity and gas consumption. Wages too dropped along with GDP growth rate, but inflation kept surging upwards as prices rose 8.16 percent, according to Argentina government data. Analysts and unions say that inflation was actually at 25 percent. 

Mail Online reports that after easing restrictions on currency and free-floating Peso in December 2015, Argentina government has set a new goal to check inflation, according to Finance Minister Alfonso Prat-Gay. He further said: "To control price expectations is the government's biggest worry. It will not be easy given the state the economy. Annual inflation is expected to reach 25 percent in 2016 and the government hopes to bring to five percent by 2019."

Fernandez during her recent visit to Harvard University faced questions about soaring inflation of 25 percent from students. Fernandez replied back saying that "if inflation is really at 25 percent, where do people take the money? Restaurants are full and malls are packed. People are spending. If inflation was really 25 percent, the country could explode. Although it's true that the country hasn't exploded."

Finance Minister Prat-Gay finds the subsidies are causing inflation to go up. The subsidies, a mark of President Cristina Fernandez, propelled the country's fiscal deficit to a 30-year high, said Prat-Gay, as reported by ABC News. "Some prices will go up because they have not been adjusted for 10 years. Subsidies are also financing the bills of richest Argentines," said Prat-Gay.

Argentina is facing criticism from World Bank and IMF over lack of transparency in financial statements. IMF for the first time in 69 years issued an ultimatum to Argentina to come out with clean records. Argentina in February 2015 announced the first price freeze, which kept retail cost of basic products at supermarkets under control until April 2015. 

Later Argentina government extended price freeze on 500 products till October 2015. However, manufacturers are expressing concerns that it's impossible for them maintain controlled prices.

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