A recent report by the Argentine human resources consulting firm Mercer ranks Buenos Aires 40th among the most expensive cities in the world. That’s up one point from last year. In Latin America, it’s second only to São Paulo, which comes in at 27th, up a whopping 74 spots from 101st last year. What’s this all about?
Argentines are used to the rhetoric – inflation, inflation, inflation. Mercer’s ranking compares costs of more than 200 items, including food and beverages, housing, transportation, clothing, household goods and entertainment. In 2009, a café con leche and two medialunas cost 7 pesos. Now, the bill is 55.
Macri projects that Argentina’s annual inflation rate for 2017 will fall just below 20 percent. He is optimistic. The International Monetary Fund estimates that the year will end with a 25 percent increase. That’s still lower than last year’s rate of 40 percent. But Macri struggles to keep the economy on a stringent disinflationary path, striving to achieve a 5 percent rate by 2020.
The elephant in the room is the increased value of the US dollar against the Argentine peso. Some experts credit recent inflation to the cost of public services due to increased tariffs. According to Gabriel Zelpo, chief economist at Elypsis, the relentless growth of the dollar will not determine inflation rates in the coming year. But others think such analysis is blind. The reality is that in 2009, the peso was 3.5 to the dollar. It is currently hovering above 16 pesos to the dollar, a threshold Lorenzo Sigaut Gravina warned in an interview with La Nación could bring “the risk of even more serious price hikes.”
A 2017 international study by Clarín confirmed that residents of Buenos Aires already pay the most for some of their daily needs compared to residents in all major cities around the globe, based on aggregate costs of the 27 most basic necessities, including bottled water, whole milk, white bread, and shampoo. One might expect this for an economy in which protectionism is the party line. Kirchner and Macri alike have maintained imported goods at prohibitively expensive prices to keep dollars in the country. An Argentine saves money by flying to Miami to buy an iPhone, as opposed to buying it at the MacStation in Recoleta.
No one knows exactly how to get out of this rut. The government, for one, is desperate for Argentines to invest in-country. But no one trusts the banks. After the 2001 financial collapse, Argentine banks froze people’s accounts to avoid capital flight. Those who had U.S. dollars were offered devalued pesos in return. Many lost entire life savings.
If history is any indication, the current high cost of living in Argentina is just another stage in the constant ebb and flow of its economy. If policy measures successfully curb inflation, the economy could stabilize within a few years. Otherwise, we might all have to get used to the idea of a triple-digit price tag for that cafe con leche habit we’ve acquired.