Argentina fights inflation by freezing prices. Will it work?
Argentina has made an agreement with major supermarkets and appliance stores to freeze prices until April. Price freezes are the sledgehammer of economic policy tools, says a guest blogger.
• A version of this post ran on the author's blog, bloggingsbyboz.com. The views expressed are the author's own.
Argentina's answer to the inflation problem: freeze prices.
As BBC and Clarin report, the government has struck a voluntold agreement with the major supermarkets and appliance stores to freeze prices through April 1. Gas prices may be next, though with YPF now nationalized, the government will face some circular harsh effects from that decision.
Price freezes are the sledgehammer of economic policy tools. Yes, it will stop inflation in its tracks by holding still the very prices that inflation measurements are supposed to track. However, the policy will also lead to shortages and even more black market activity. Combined with Argentina's heavy currency controls, imports are going to become even harder to obtain. And what happens on April 1? Price freezes are often a quagmire because governments jump into them without exit strategies.
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