Argentina Announces Price Freeze to Control Inflation; Expect a Robust Black Market and Falling Tax Revenue

Argentina just announced price controls. Yet, common sense alone is all it takes to know that price controls cannot work.

For example, if government sets prices too low, suppliers will not sell merchandise at a loss, and shortages will appear. It will not matter one bit what the official prices are, because it will be impossible to get merchandise at deep discounts to true market prices.

It's as simple as that, yet politicians think they can halt the incoming tide by decree.

Please consider Argentina Freezes Prices to Break Inflation Spiral.

Argentina announced a two-month price freeze on supermarket products Monday in an effort to stop spiraling inflation.

The price freeze applies to every product in all of the nation's largest supermarkets — a group including Walmart, Carrefour, Coto, Jumbo, Disco and other large chains. The companies' trade group, representing 70 percent of the Argentine supermarket sector, reached the accord with Commerce Secretary Guillermo Moreno, the government's news agency Telam reported.

The commerce ministry wants consumers to keep receipts and complain to a hotline about any price hikes they see before April 1.

Polls show Argentines worry most about inflation, which private economists estimate could reach 30 percent this year. The government says it's trying to hold the next union wage hikes to 20 percent, a figure that suggests how little anyone believes the official index that pegs annual inflation at just 10 percent.

Expect a Robust Black Market

The government's official CPI measurement is 10.8%, but no one believes that, especially with the government attempting to hold wage hikes to a mere 20%.

Setting up a hotline is a waste of time and money. Actually, it's worse than that.

If the hotline and other enforcement mechanisms succeed at anything, it will be to drive transactions to the black market. And then the government will lose tax revenue in the process.

The more "success" the government has in suppressing illegal price hikes, the bigger the black market will become.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com