Answer to Question #233550 in Economics for Genine Kriegler

Question

Argentina’s inflation accelerated at the fastest pace since President Fernandez took office in 2019, prompting government to tighten its unorthodox controls. Consumer prices rose 4.2%. Consumer prices in Argentina have stayed above 3%. Double-digit inflation has been a problem. The government has relied on unorthodox tools, rejecting traditional monetary options used by most countries. The recent spike, with the inflation rate running at about 40% annually, threatens to derail Argentina’s fragile economic recovery. The government ordered stricter enforcement of price controls and it would hire as many as 500 inspectors to ensure businesses are complying with regulations. Guzman asked for “more cooperation” by companies to try to reach the government’s 29% annual inflation target for the end of 2021. Economists say the rate accelerated to almost 42% in March. In light of the above article, discuss some of the negative effects of inflation that Argentina may experience. 

Answer 1

The negative effects of inflation that Argentina may experience are the fall in real wages, sharp increase in consumer prices, increase in unemployment levels and further recession. Such policy as price controls will be inefficient until contractionary fiscal or monetary policy is implemented.