It's Semi-Official -- Inflation at 25% last year

A very common complaint in Buenos Aires is how prices are going up. And coming back after just eight months, I could see that almost everything seemed more expensive. Taxi rides in particular -- wow, they seem to have gone up close to 100%. What used to be a 10-peso ride now costs 20. Food too seems quite a bit more expensive. As I said, it's something everyone complains about, something covered on the local news all the time.

But the official government rate of inflation for 2007 was 8.25%, which isn't so bad. And absolutely nobody believed it, it seemed. When the figure first came out, there were lots of stories on the local news, interviewing people on the street and business people and whoever, and everybody disputed that figure, citing all kinds of examples of rising prices.

And sure enough, yesterday the results of an independent study done by what appears to be a respected group determined that in 9 months of last year inflation was 18% or so, extrapolating to 25 or 26% for the full year. This is much more in line with people's experiences.

This is a sad development. Inflation tends to 'spiral' -- inflation leads to more inflation. I studied economics a fair amount, and I'm still a bit fuzzy on the mechanics -- I think everyone is. In general they say 'inflation expectations' get incorporated into price-setting, contract negotiations, labor negotiations, and so everything just keeps getting more and more expensive. But what causes it to spiral out of control, I don't know.

But I do know that this is something that's happened in Argentina, a bunch of times. I will try to go back and find some statistics, but make no mistake, it's a habit here. And it's definitely a risk right now. (Turns out that increased economic activity tends to lead to inflation. "Too much money chasing too few goods, is how the economists put it. This is what they're talking about when they say the Fed or whoever is afraid the economy is "overheating." And argentina is having lots of economic activity right now. It hardly looks like it's overheating, but, to continue the metaphor, at what point your economy overheats depends on what it's made of. If it's made of straw, it may overheat easily. If it's made of ceramic or steel, it can take lots of heat.

I don't think that the argentinian economy is made of straw, but unfortunately, it may be made of wood. Inflation watch ahead.