Rising tides: consumption and inflation
By Martín Schijvarg
Account Director, Millward Brown Argentina
In recent years, Argentina has managed to sustain the growth of its economic activity. Characterized by strong consumption there are certain industries, such as the automotive and technological (LED TVs, mobile phones and other appliances) that have performed particularly well.
Compared to the global context of economic stagnation in the United States and in several European countries, Argentina has managed to maintain employment rates and the social development funds designed to improve them, including the ‘Plan Trabajar’, ‘Jefes y Jefas de Hogar’ and the ‘Universal Child Allowance’. An important feature of the Argentinean economy and approach to employment in various sectors remains collective bargaining (for example over workers’ pay and conditions). In many cases, this has created agreements at — or even higher than — the inflation rate, which has exceeded 20% annually over the past five years. (Note that the gap between this figure and INDEC officiala figures of 10% annual inflation is very pronounced). The government has tried to address the sustained increase in the cost of living by controlling prices, with varying results depending on the type of goods.
Higher consumption levels have forced Argentina to import more and more energy and gas to meet the growing demand. This has generated strong growth in imports and in order to strike a positive trade balance, the government has restricted imports of many products. Earlier this year it also announced that the tax on credit and debit card purchases made abroad would rise from 15% to 20%.
Another issue the government has been tackling is the capital leakage caused by the flight to the dollar (a common Argentine response to economic uncertainty). Since 2011, the purchasing of dollars has been restricted to certain commercial activities, leading to a 50% increase of the parallel dollar rate (also know as the ‘blue dollar’) this year. This has severely damaged the construction industry in particular, since properties are quoted in dollars and currency disparity between the official and parallel market creates tension, as some sellers want to reap dollars from the sale and buyers face difficulty in obtaining them.