According to Yahoo Finance, inflation in Argentina soared to 78.5% in August, a 30-year high for the country. The Argentinian central bank recently hiked interest rates 550 basis points to 75%. The recent rate hikes came after the Argentinian central bank already raised 950 basis points in August.
The New York Times called it “one of the country’s worst economic crises in decades.” For context, Argentina hit 200% inflation in the 1980s. Bloomberg says it’ll hit 99.6% by year’s end and remain over 100% through the first half of 2023. So, why is inflation so high in Argentina, and what does this mean for their economy?
War and drought are hurting exports
Argentina is a major global exporter of soy, corn, and wheat. Consequently, the country relies on the income from its crop exports to stimulate its economy. But the global repercussions of the Russian invasion of Ukraine and droughts seriously damaged their ability to export goods.
As a result, the county is growing genetically modified (GM) crops to stave off food shortages. But, uncertainty surrounding the practice is hurting exporting capabilities. “The main concern is the possibility that GM wheat and non-GM what could end up mixing,” said Rosario grains exchange chief economic analyst Julio Calzada. “This could spark bans in international markets […].”
Argentina introduced a $44 billion deal to combat inflation
In March 2022, the country reached a $44 billion deal with the International Monetary Fund to help combat inflation. Unfortunately, according to Reuters, 95% inflation is a floor rather than a high. The deal immediately disbursed the equivalent of $9.65 billion into the Argentinian economy.
How Argentinians cope
According to The New York Times, experts say Argentina holds the most American currency outside the US globally. They do so because the value of the Argentinian peso is “disintegrating in value.” One USD is equivalent to about 298 pesos. The country’s minister, Sergio Massa, pledged they would stop printing currency to help combat the continually falling value of the peso.
