For Americans Shocked by Inflation, Argentines Have Some Advice
Dec 10, 2021
The unexpected spike in inflation that has shaken the economy has been unsettling for many Americans.
In the United States, consumer prices have been so constant for so long that the public is rusty on fundamental inflationary-era methods.
As a result, we sought counsel from those who have mastered the art of enduring rampant inflation: Argentines. Walk around Buenos Aires and you'll hear people talking about currency exchange rates, skyrocketing costs, and coping tactics from 18-year-old college students to 90-year-old pensioners and everyone in between.
Of all, the 50% inflation rate they face in a normal year in Argentina — the result of decades of economic mistakes that have eroded trust in the central bank — is significantly greater than the 6.8% rate Americans are experiencing. However, many of the concepts that drive Argentine workers', consumers', and savers' daily behaviors are still generally applicable in the United States today.
For as long as the inflation fever lasts, these are the Do's and Don'ts they gave.
Spend Your Paycheck Right Away
Money sitting in the bank loses value in a high-inflation environment. Those $100 on deposit purchase a little less each day. As a result, many Argentines spend their wages as soon as they get them, bringing home weeks' worth of supplies in a single shopping trip, even if some of it may remain in the freezer for months (extra meat, chicken, fish).
In the United States, where inflation isn't nearly severe enough to merit such a frenzied pay-day run, this strategy is used to speed up plans to buy big-ticket things like appliances, bicycles, and furniture. If you have the funds to purchase that sofa right now, do so.
"Don't put your money under the sofa," advises Federico Pieri, a 30-year-old salesman in Buenos Aires. "That's the very worst thing you could possibly do."
Borrow Lots of Money
Also, don't be afraid to take out a loan to help you pay for some of those major items. If you can acquire a loan with a lower interest rate than inflation, which is now achievable for many Americans, take advantage of it. Inflation will make repaying the debt simpler in the following months and years.
According to Fernando Iglesias Molli, a coffee shop owner, "take out money at very cheap rates, precisely like they teach in economic textbooks." I went into debt to get the greatest equipment and to open up new business options."
Negotiate a Pay Raise or Two
It's crucial to realize, as Argentines point out, that the previous 2% annual salary increases are no longer sufficient. Any raise in your income that is less than the inflation rate of 6.8% is basically a pay decrease. Your actual pay is decreasing, as economists put it.
Argentina's labor unions and employers negotiate annual wage rises for employees that take into account inflation expectations. When prices grow faster than expected, those contracts are frequently broken up, and the parties return to the negotiation table to work out new conditions. It's a tremendous weapon that American employees may learn from, even if it causes concern among policymakers attempting to avoid a wage-price spiral.
Buy Inflation-Linked Bonds
In a high-inflation environment, savers have few viable alternatives. Converting peso savings to dollars, one of Argentines' favorite saving methods, doesn't work in the United States, of course. Cryptocurrencies are another popular choice, although many Americans have already found them.
Then there's debt that is connected to inflation. Years of rising consumer prices have wounded Argentine bond investors to the point that they demand the government issue assets whose value grows in lockstep with the consumer price index. Those bonds account for about half of the local debt market.
They make up less than 10% of the entire market in the United States. However, demand is increasing, particularly among small investors who are flocking to the retail form of the instruments.
"At the very least, try to invest in anything that can correspond with inflation," Pieri advises.
Buy Homes and Cars
Another long-standing inflation hedge is real estate, which tends to appreciate in value over time. Automobiles are also a popular savings option for some Argentines. That choice may seem strange in a place like the United States, where cars depreciate fast, but the global shortage of automobiles has suddenly transformed that dynamic.
Marcos Lalanne, a 29-year-old lawyer, advises, "Buy things. There are certain items that will maintain their worth in the face of inflation."
And for those Americans who are particularly irritated by rising costs, Lalanne has another bit of advice: "Come spend your money in Argentina. Here you are very rich.”