As of today, a new “transparent pricing” scheme has come into effect across Argentina.
It basically requires that the ‘real’ cost of purchasing goods and services in cash or on credit be clearly marked on products, so that consumers can make better purchasing decisions.
The law states that the following information must be made clear to consumers: the cash or one-off payment price of a product; and, for those purchasers who buy on credit, the cost of each installment, as well as the total financing cost. The total financing cost or CFT is the real cost of obtaining credit to buy something, including the annual interest rate and any other hidden costs.
In the past, these costs were not clearly marked, and were absorbed into the overall price of the product, whether you paid cash or credit.
According to the Government, the aim of the scheme is to “increase the price transparency of products and services, incentivize consumption and encourage demand competitiveness.” Some experts expect this to lead to a sharp drop in the price of goods purchased in cash or in one installment.
“In this process of speaking the truth, competition will lead to better cash prices and better financing options,” said Secretary of Commerce, Miguel Braun. “We are convinced that there are many prices in areas like electronics, electro-domestics and clothing that will go down for outright purchases or cash purchases.”
However, some are arguing that the program has had the opposite effect, causing prices to stay basically the same or go up. On El Destape, Mariano Parada López points out that the price of installments on some products has already gone up by up to 16 perecent. He gives the example of iPad for sale on Compumundo, which, although now 2.14 percent cheaper if bought outright or in cash, includes installments that have gone up by 16 percent since last month.
Others point out that another source of bad news for consumers is the fact that the measure does away with cherished “interest-free” installments of the Ahora 12/18 plan. In a country where 40 inflation occurs, this seemed to be a dream come true, and was one of the only ways make inflation work for you by locking in payment installments so that the relative price of the 18th instalment would be cheaper than the initial installment.
The Ahora 12/18 program, which is at its core a credit program that enables Argentines to buy a wide range of products in 12 to 18 installments with no interest rate, first came into effect in September of 2014 with the aim of boosting national consumption.
“Transparent Pricing” does not end Ahora 12, but now the goods and services available through those programs will no longer say “interest-free,” one of their most attractive features. Instead, they will include the total financing cost. In the case of Ahora 12, this is 27%, and for Ahora 18, it is 30%.
In the words of Pagina 12, “the new scheme will distort the Ahora 12 and Ahora 18 programs. Even though these plans do include much cheaper financing than the regular plans, the great attraction of ‘interest-free installments’ will no longer be in effect.”
But were the “interest-free” installments of Ahora 12 really interest-free?
According to the Government, not really: “interest-free installments in fact transfer that interest to the original price of the product, making it more expensive.” So you weren’t really paying less for that dress or fridge at the end of the day, after a year’s inflation did its thing, it was just incorporated into the original price.
In an infographic released by the Casa Rosada, we see how this may have been the case. A pair of pants is marked at AR $1,200 or 12 installments of $100. Which means that those who pay cash were partly absorbing the financing cost (the total cost of borrowing money to buy a product, including interest etc) in their one-off purchase of the good. That is, those who paid cash paid an inflated price.
With transparent pricing, the same pants would cost AR $1,054.83 if purchased in cash, and, if bought through Ahora 12, they would ultimately cost you $1,200 — the same they cost under the whole scheme. If, however, you buy the pants outside of the Ahora 12/18 plan, you will pay more. The real cost of buying these pants under a regular credit program is AR $1,269.60.
Many in Argentina are nervous. A 150 percent increase in electricity prices in conjunction with nearly 2 percent inflation anticipated for January makes the disappearance of those magic three words — “cuotas sin interes” — from shopfront windows all the more devastating.