Macri's devaluation could have major impact on Argentine prices.
The decision to lift currency restrictions announced yesterday, and where precisely the exchange rate will settle after trading begins today, could have a major impact on prices. Prices have in fact already risen since the November 22 runoff in light of President Mauricio Macri’s repeated pledges to undo the Kirchner-era policy of limiting access to U.S. dollars and maintaining a crawling-peg devaluation.
While official inflation estimates have not been released for November, prices since then for certain basic goods have spiked between 20 to 30% according to major consumer union and business chambers. Supermarkets and retailers have already been bracing for what many believed would be a sharp devaluation of the peso once Macri took office.
Finance Minister Alfonso Prat-Gay said yesterday during the announcement that “the law of the jungle would not apply to consumer prices” following any shifts in the exchange rate in today’s trading. But announcements that beef exports will no longer have any kind of restrictions sent prices soaring before Macri took office, with some reporting increases of 30%; the cut of meat known as asado would be priced between 100 and 130 pesos a kilo ($3 to $4 a pound) during the summer holidays. The mid-range cut is a standard on Argentine grills. Agriculture Minister Ricardo Buryaile said on Monday that the government would “try” to bring prices back to what they were in November.
After a series of increases in the price of new automobiles last month (with some reaching as much as 40% over the last model year's basis) auto industry leaders have suggested the a devaluation would not have a major impact in the short-term. Manufacturers of industrial inputs for finished products, however, have already been increasing prices to reflect an exchange rate at 16 pesos to the dollar (rather than at the roughly 10 peso rate prevailing until yesterday).
The price of flour has also jumped by 100%, as producers have expected that increased exports and reduced export duties will result in greater prices for the products. Emilio Majori, who represents bakeries in Buenos Aires Province, said that the price of a 50-kilo wholesale bag of flour for bakery use had jumped from a range of 110-130 pesos to 240-250 pesos after the runoff and that as result bread would likely retail around 30 pesos per kilo (around 50% higher).
Unions have already taken note of the price increases, and Antonio Caló of the UOM metalworkers’ union (the principal union leader within the CGT, Argentina's largest trade federation) has said that the loss of purchasing power will have to be compensated. Caló said last night that his union will be seeking a 5,000 peso end-of-year bonus in light of what he expects to be a 50% devaluation. Even Hotel and Restaurant Union leader Luis Barrionuevo, who endorsed Macri, is now demanding a 50% raise.
Whether a devaluation would affect the price of consumer goods emerged as a sharp debate ahead of the presidential runoff, with economists supporting center-left candidate Daniel Scioli insisting it would while right-wing economists supporting Mauricio Macri contending companies had already adjusted the prices of their products according to the black-market exchange rate. Scioli was narrowly defeated by Macri in the runoff.
“What (Macri’s economists) are arguing is that 'if food is not imported then why would it be made more expensive by a devaluation?' But the problem is that most basic goods can also be sold abroad. A bottle of cooking oil costs 10 pesos in an Argentine supermarket and one dollar abroad; but a sudden devaluation would mean that now a producer can get 15 pesos for that same bottle by selling it in Europe, for instance. Why would he then keep selling it at 10 pesos here?” said Daniel Scioli’s chief economic adviser Miguel Bein.
At: http://buenosairesherald.com/article/205128/measure-could-have-major-impact-on-prices
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A real windfall for dollar hoarders though - including, per SwissLeaks, Finance Minister Prat-Gay himself. http://www.democraticunderground.com/110845605
