South America to Scandinavia: People are fighting against inflation

 Both inflation and the cost of electricity have skyrocketed in recent years. But how are governments in other regions responding? Reports have come in from Argentina as well as the Scandinavian nations.

[Inflation in Sweden]

In Argentina's history during the 20th and 21st centuries, annual inflation rates of less than ten percent are very uncommon. A current inflation rate of seven percent, as it is in Germany, would undoubtedly be very much appreciated by the vast majority of Argentinians. The economy of Argentina is a perplexing instance that does not fit into any obvious pattern that might be used to explain it. In the last century, the growth of the gross domestic product has resembled a picture of huge heart arrhythmias. This pattern has persisted over the previous century. The nation's agriculture is so productive that it can still provide food for 10 times the number of people living inside its borders. On the other hand, nine different states have filed for bankruptcy in the most recent history of the nation.

When compared to the same month in the previous year, inflation was 64% in August of 2022. In 2021, Argentina had the sixth-place position internationally with a percentage of 48.4 percent. As a result, the high inflation is most certainly not only attributable to the growing costs of oil and food on the global market. The evolution of prices in Argentina has always had a pattern of being on the more extreme end of the spectrum. When we look at the figures for the period between 1980 and 2019, we see that the annual inflation rate averaged a startling 215.4 percent.

Every day, people have to deal with the reality that economic downturns, national bankruptcies, falling savings rates, and actual salary losses are all part of life. Children are already familiar with both the concept of inflation and the concept of currency rates. The official dollar and the dollar blue (the unofficial exchange rate) are discussed in the news on a regular basis. Additionally, topics such as the weather and the number of Covid infections are discussed. Because as soon as the dollar loses its value, everything instantly becomes more costly; this includes bread, petrol, and the much-loved asado, which is meat that has been grilled and is considered a cultural national treasure along with football. At the moment, a one thousand Argentine peso bill is only worth the equivalent of 3.44 euros. This is the biggest banknote currently in circulation (or 7.60 euros according to the official exchange rate). Actually unthinkable.

There were significant shifts in both prices and currency rates over the month of July 2022 alone. The abrupt resignation of Economy and Finance Minister Martn Guzmán, who adhered to the Joseph Stiglitz school of thinking, threw the Peronist administration into political disarray. Before the resignation, the exchange rate at the currency offices was 25,000 Argentine pesos for every 100 United States dollars; after the resignation, the rate increased to over 34,000 pesos. After the resignation of another finance minister and the inauguration of the new super minister, Sergio Massa, who is already being marketed as a potential future presidential contender and whom the "markets" like more, you now receive something in the neighborhood of 29,000 pesos for that amount.

As a direct consequence of this, everything in Argentina revolves around the United States dollar and obtaining this cash in some way. The underground economy is thriving. It is a waste of time and money to save Argentine pesos since the value of such deposits is being eroded by inflation. That's been said that need is the mother of invention, and it certainly seems to be the case here: discount offers in supermarkets are researched in great detail, installment payments are also employed for modest quantities of money, and even students engage in cryptocurrencies. After the most recent big state bankruptcy in 2001, there has been a renaissance in the use of barter markets, and the growing of vegetables on a balcony in a small city is no longer an anomaly.

Inflation, on the other hand, chips away at salaries and benefits from the state. In spite of the fact that monthly adjustments are made to collective agreements, the government has introduced price controls on certain foods, has repeatedly raised the minimum wage, and has even stopped exporting beef at times in an effort to keep prices in the country stable, inflation is on the rise. More than a third of the population of what was once a wealthy country, Argentina, today lives in abject poverty and is reliant on informal community support systems and soup kitchens. According to their perspective, the present trajectory of inflation is a tragedy for the human race.

The question of who exactly is to blame for this turn of events is one that will never go away. During the present political discussion, individuals on the political left are pointing the finger at those who are responsible for Argentina's dependence on the international financial institutions of the Global North by borrowing billions of dollars from the International Monetary Fund (IMF). Both liberals and conservatives point the finger to populist Perianism as the root of the problem. The right-wing libertarian movement has come to the conclusion that inflation is being caused by a bloated governmental infrastructure, which the Peronists themselves were responsible for creating.

In any event, the reality is that inflation has skyrocketed over and again under governments that were more progressive and governments that were more conservative, under governments that were pro-Peronism and governments that were not pro-Peronism, and under civilian and military regimes. Since March 2022, another factor has been added, which is the pandemic. Since then, another factor has been added, which is the international increase in energy and food prices as a result of the war in Ukraine. This increase can be felt throughout the Latin American region, and it is again potentiating the already existing inflation in Argentina.

Debt or banknotes printed by a printing press are used to fund the government's financial deficit. At the same time, there is no political agreement, and there are often sudden shifts in the path being taken, which creates an unstable institutional and political framework. The difference in value between the unofficial dollar and the official dollar, which the central bank has maintained at 130 pesos, is currently more than one hundred percent, which results in a variety of macroeconomic inefficiencies in the import and export trade. A stringent framework is imposed on Argentina as a result of a program that was agreed upon with the IMF in order to repay the 44 billion dollar loan beginning in 2018.

Inflation should be brought down to more manageable levels, an aggressive reserve-building strategy should be implemented, and the budget should be balanced by 2024. At this point, all of our expectations are riding on the new economics minister, who also oversees the banking and agricultural sectors, as well as the energy sector. He has already made it clear that he intends to cut government expenditure to the point that the deficit in the budget does not exceed 2.5 percent of GDP. It is also necessary to halt operations at the printing press. This will be seen as a victory in Argentina if he is successful in bringing inflation down to 30 percent by the time the next presidential elections roll around without simultaneously increasing the level of poverty experienced by the general people.

The fact that journalists  in the pedestrian zone are confused about the current price of butter leads one to the conclusion that the price rise has made its way into the routine lives of people living in the Nordic countries. Not only does this effect the cost of food, but also the cost of energy. In order to alleviate the financial burden that this price rise places on families, the Scandinavian nations have developed a wide variety of methods.

In certain instances, the governments will take action to compensate for the negative consequences of inflation by using automatic equalization methods. The Swedish word for "price basis amount" is "Prisbasbelopp," and this term refers to what is known as the "price base amount." This is done on a regular basis by Sweden's Central Statistical Office based on a consumer price index, and it is used in the process of controlling how the government provides its services. These may take the form of, for instance, financial aid for students, guaranteed pensions, or tax deductions. The total value of the benefits is then modified accordingly after taking into account any shifts in the pricing base amount. The sum has seen the highest growth in this year since records began being kept forty years ago.

However, not every government award is subject to the automatic adjustment. For instance, the amount of child benefit does not go up to reflect changes in the cost of living. The Swedes are thus relieved to varying degrees. In addition, Sweden has agreed on a number of ad hoc measures, such as a reduction in taxes. The answer to the issue of whether or not there will be further help in Sweden will be determined by the elections that will take place in September and the following budget discussions that will follow.

Regarding the topic of real wages, the social partners have a variety of different points of view. While the Swedish economy cautions against offsetting the effects of inflation with salary rises, the Swedish trade union center LO is concerned that the actual salaries of workers may see a significant decline. In addition to the precarious state the economy is in right now, a large number of collective agreements will be up for renewal in the next year. One of the reasons why the state-run Medlingsinstitutet, which is in charge of conducting collective bargaining, anticipates unusually tough discussions is because of this.

But does the north also have any people who stand to benefit from inflation? Norway is a particularly significant source of oil and gas for the nations of Europe at the moment since it is a nation that is both democratic and stable. The nation as a whole, as well as the (partially) state-owned businesses operating in the oil and gas industry, are unquestionably profiting from the rise in market price. On the other hand, this does not always indicate that Norwegian families will be pleased with this price development right away. Because their economies are relatively small and open, the Nordic nations are often also significantly exposed to the influences of the outside world.

This implies that the costs of energy for consumers have also dramatically increased in Norway, and this is in addition to a variety of causes that are internal to Norway. Another facet of significance is included here: The nation, similar to Sweden as an example, is broken up into several power zones, each of which has its own rate structure for the cost of energy. In the present day, they demonstrate significant variances throughout the several regions of the country, which in turn produces political problems. The cost of power in the southern sections of the nation is now many times greater than the cost of electricity in the northern portions of the country.

When compared to Germany, none of the Nordic nations have the same degree of concern over their supply security, which is intrinsically tied to the cost of energy. As a producer of oil and gas, Norway is mainly independent on outside supplies. The supply of fossil raw materials from Russia had been put a very small amount of trust on the other countries; nevertheless, this dependence was growing. Even if the majority of the gas imports came from Russia, as was the situation with Finland, the fraction of the national energy mix that is comprised of gas is still rather tiny.

A number of nations get their power from nuclear plants or from renewable sources. During the months of May and June, Russia cut off the supply of natural gas that it was sending to Finland and Denmark. On the other hand, there have not been any significant supply constraints up to this point. Nevertheless, at the end of June, Denmark and Sweden issued an early warning of probable future bottlenecks. However, contingency plans have been made and other alternatives to gas are now being researched and developed in order to prevent this from occurring. These might become especially significant in Denmark, since the nation has intended all along to restart gas production in the huge Tyrafelt field in 2023. However, in accordance with the operating business, Denmark is now need to come to terms with the reality that financing cannot begin until the winter of 2023/2024. There is an immediate need to investigate other options.

Authors: Dr. Svenja Blanke and Kristina Birke Daniels

Source: IPG