Inflation is Good: Argentina Imposes Price Controls Amidst Spiraling Inflation and Shortages

Some people argue that inflation is necessary. 

Well we will take the validity of such claim based on the current Argentinian experience

From Businessweek/Bloomberg

Argentine supermarkets, including local units of Wal-Mart Stores Inc. (WMT), Carrefour SA (CA) and Cencosud SA (CENCOSUD) agreed to freeze prices for 60 days amid inflation that accelerated last year to the highest in the hemisphere.

The United Supermarkets Association agreed to keep prices unchanged in their stores until April 1 during a meeting today with Interior Trade Secretary Guillermo Moreno in Buenos Aires, according to a statement from the Argentine Chamber of Commerce.

President Cristina Fernandez de Kirchner has defended her government’s official data that shows consumer prices rose 10.8 percent last year compared with private estimates of 25.6 percent. The government’s alleged underreporting of inflation, which began under Fernandez’s predecessor and husband, Nestor Kirchner, prompted the International Monetary Fund to censure the South American nation on Feb. 1 for the first time in the Washington-based organization’s history.

“They’re trying to hold down inflation, but we’ll see what happens once the agreement ends,” said Susana Andrada, director of Buenos Aires-based consumer watchdog Center for Consumer Education in a telephone interview. “They may be able to control prices of 300 goods, but then we may face some shortages as retailers keep goods off the shelves.”

I am reminded by the great Ludwig von Mises who wrote of the semantic maneuvering by officials and their apologists to redefine inflation to justify price controls.  [italics original, bold original]

To avoid being blamed for the nefarious consequences of inflation, the government and its henchmen resort to a semantic trick. They try to change the meaning of the terms. They call "inflation" the inevitable consequence of inflation, namely, the rise in prices. They are anxious to relegate into oblivion the fact that this rise is produced by an increase in the amount of money and money substitutes. They never mention this increase.

They put the responsibility for the rising cost of living on business, This is a classical case of the thief crying "catch the thief." The government, which produced the inflation by multiplying the supply of money, incriminates the manufacturers and merchants and glories in the role of being a champion of low prices. While the Office of Stabilization and Price Control is busy annoying sellers as well as consumers by a flood of decrees and regulations, the only effect of which is scarcity, the Treasury goes on with inflation.

And that price controls function as mechanical responses by political authorities on inflation. Again the great Mises:

The problems the world must face today are those of runaway inflation. Such an inflation is always the outcome of a deliberate government policy. The government is on the one hand not prepared to restrict its expenditure. On the other hand it does not want to balance its budget by taxes levied or by loans from the public. It chooses inflation because it considers it as the minor evil. It goes on expanding credit and increasing the quantity of money in circulation because it does not see what the inevitable consequences of such a policy must be…

The real danger does not consist in what has happened already, but in the spurious doctrines from which these events have sprung. The superstition that it is possible for the government to eschew the inexorable consequences of inflation by price control is the main peril. For this doctrine diverts the public's attention from the core of the problem. While the authorities are engaged in a useless fight against the attendant phenomena, only few people are attacking the source of the evil, the Treasury's methods of providing for the enormous expenditures. While the bureaus make headlines with their activities, the statistical figures concerning the increase in the nation's currency are relegated to an inconspicuous place in the newspapers' financial pages.

I expect such twin political reaction (inflation-price control) to become a global phenomenon.