Tuesday, February 5, 2013

Argentina freezes prices to break inflation spiral

What a diasaster!  We'll talk about price controls here in the USA at the bottom of the post.
The price freeze applies to every product in all of the nation's largest supermarkets — a group including Walmart, Carrefour, Coto, Jumbo, Disco and other large chains. The companies' trade group, representing 70 percent of the Argentine market, reached the accord with Commerce Secretary Guillermo Moreno, the government's news agency Telam reported.

The commerce ministry wants consumers to keep receipts and complain to a hotline about any price hikes they see before April 1.

Polls show Argentines worry most about inflation, which private economists estimate could reach 30 percent this year. The government says it's trying to hold the next union wage hikes to 20 percent, a figure that suggests how little anyone believes the official index that pegs annual inflation at just 10 percent.
So, the price freeze which is supposed to last a mere 2 months (fat chance!  They'll extend it) will do only one thing: Create scarcity.   So, what do you think everyone will do during the 2 month period?


The shelves will be emptied.  Watch freezers fly out of the appliance stores as people ramp up the hoarding - which I'm sure was already going on since their inflation is already high.  And when the price controls are lifted?  There will be less food and prices will shoot through the roof.  It will take several years to rebuild the herds and grow the crops to replenish what was lost.

The US learned that lesson back in the '70s. I remember, as a teenager who just didn't understand how it all worked, being ecstatic when Nixon froze wages and prices.  What a great idea!  Our inflation at the time was a whopping, show stopping 6%.  Why did we even bother?

After the damage was done, Nixon's hat was handed to him.

It is equally unusual when a president, 35 days after he had imposed a dramatic price freeze to appease an angry electorate, discloses his mistake by saying, " Food has given the clearest evidence of the harm that controls can do to the supplies, " and "The freeze is holding down production and creating shortages which threaten to get worse."
The President had been advised by [Secretary of the Treasury] Schultz, among others, against the freeze. Yesterday he acknowledged, "We have seen baby chicks drowned, pregnant sows and cows, bearing next year's food, slaughtered and packing plants closed down."

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