Argentina imposes two-month price freeze on supermarket products to curb 26% inflation

The Argentine government announced Monday that it has imposed a temporary price freeze on all products sold in all of the nation’s major supermarket chains in an effort to fight off inflation, local media outlets reported. The Association of United Supermarkets, a group that represents close to two-thirds of Argentina’s grocery stores, including Walmart, met with President Cristina Fernandez de Kirchner agreed to keep prices steady retroactive to Feb. 1 until Apr. 1.

This latest measure comes as the International Monetary Fund (IMF) reprimanded the Argentine government Friday for not providing accurate economic data that measures inflation, which experts say it has been doing since 2007. Official Argentine statistics are vastly different than those available by private sector economists.

Supermarket customers have long complained about the constant rise in prices. According to Argentine government statistics, the inflation rate in 2012 was 10.8 percent, but private sector economists have the figure pegged at more than 25 percent.

Argentina’s commerce ministry informed customers that they should monitor the grocery store prices. It urged consumers to keep the necessary receipts because the government has established a hotline for shoppers so they can report any price hikes.

The IMF warned that if Argentina does not issue correct and improved data measurements then it will be excluded from future IMF decisions. This has led Economic Minister Hernan Lorenzino to promise to implement new inflation methods starting in the last quarter of this year.

“Argentina, just as it agreed with the IMF to do, will keep working to improve its statistical procedures in accordance with good international standards,” said Minister Lorenzino, reports the Associated Press.  “Later this year, the new General Household Spending Survey will enable the tracking of spending in Argentine households nationwide.”

Economist Soledad Perez Duhalde of the abeceb.com consulting firm told the news outlet Monday that the two-month price freeze will only have short-term effects, but similar moves in the past have proved futile in the long-term. She added that consumers should expect supermarkets to restock their shelves gradually and even offer fewer products.

Similar steps have been taken all around the world throughout history. In the United States, President Richard Nixon implemented wage and price controls in 1971 in order to calm inflation – the federal government capped gas prices in 1979 by President Jimmy Carter. The initial 90-day freeze lasted close to 1,000 days in four phases and became a complete failure.

The inflation rate was between four percent and six percent and exceeded nine percent by the end of the policy. Indeed, the price and wage controls were deemed a success in the first two months, but as time went on, meat began disappearing from grocery store shelves, milk became scarce, gas stations served gas on a first-come-first-served basis, which led to long lineups, and Americans started to protest the streets because their wages didn’t keep up with inflation.

Even short-term price controls can have long-term consequences. For instance, rent controls were enforced in New York City after World War II in order to keep housing costs at ease and made it affordable for returning soldiers. However, the unintended consequences were decreases in rental housing and an increase of existing rental housing prices.

Due to rent controls, new owners did not enter the marketplace and existing landlords simply left the market. Therefore, there was a smaller supply of housing than the free market would have permitted.

Furthermore, price controls have other long-term ramifications such as quality. In the case of price controls for houses, landlords did not maintain the properties because they had no incentives to keep the property in good condition. Other examples during the post-World War II era include a significant portion of fat being added to hamburgers and candy bars being produced smaller each year and having low-quality ingredients.

Price controls can also create a black market.

Governments and bureaucrats may have good intentions when it comes to price controls – Milton Friedman once quoted Saint Bernard of Clairvaux and said that “the road to hell is paved with good intentions” – but when they control prices history has shown that it leads to higher prices, a deterioration in goods and services, bureaucracies become larger and there is more intrusion into private affairs.

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