Argentina’s inflation increased much less than expected, a sign that President Milei’s actions may be working.
Argentina inflation came in at lower than expected in February, data released on Wednesday showed. This is a major boost for President Javier Milei, a self-professed libertarian who took office in January.
Inflation in the South American country grew by 13.2% in February compared to 20.6% in January and 25.5% in December. Reuters-polled analysts expected February prices to soar by 15% in February.
Javier Milei inherited the world’s highest inflation, with annualized rates growing by 276.2% in February. Together with Venezuela, Turkey, and Zimbabwe, Argentina features among the worst inflation-hit countries in modern times.
This was the result of decades-long failed economic policies by Argentinian governments, which caused poverty to rise uncontrollably across the entire country. Yahoo! Finance estimates that Argentina’s poverty reached 40%, while Reuters reports numbers as high as 60%.
According to a UNICEF report in February, child poverty could reach 70% in Argentina within the first quarter of the year.
The crisis severely worsened in the last decade. In 2010, Argentina’s poverty rate was barely above 11%, and was one of the richest countries in South America.
Inflation is especially damaging to the lowest classes. First-necessity goods like staple foods and energy are now too expensive for most Argentinians to pay, with constant hikes that keep the cycle going.
Milei’s plan
Javier Milei was seen as a radical solution to solve Argentina’s endemic crisis. Though most of his draconian measures would be unacceptable elsewhere, the Argentinian electorate is seemingly ready to try anything to solve its issues.
During his electoral campaign, Milei presented a roadmap to slash Argentina’s inflation and increase the quality of life. He implemented severe austerity measures, decommissioning the Ministry of Transport, Culture, Science, Tourism, and many others. In Milei’s view, all these sectors should be privately run.
Then, Milei pledged to close down the country’s central bank and dollarize the economy. This would mean either adopting the US dollar as the running currency or pegging the Argentinian Peso to the US dollar value.
Most countries in history that fell victim to hyperinflation got out by changing the currency. Pegging the Argentinian Peso to the US dollar would most likely solve the inflation issue, but also usher in new challenges for the economy.
For example, Argentina would be forced to follow US monetary policies no matter what. Interest rates will change according to the US economy, not Argentina’s. Historically, countries that dollarized the economy faced several years of economic stagnation afterward because the monetary policies were not aligned with the country’s real needs.
So far, Milei has not taken action toward the dollarization. Instead, he halved the Peso’s value, which helped slow down inflation but was not enough.
