When we think about the word inflation, we always tend to think about nations such as Zimbabwe or Venezuela, however there is another nation that is currently facing an economic crisis because of Inflation, and this country is: Argentina. Over the last year Argentina’s inflation rate has jumped from 25%, which was already a lot more than the 2-3% healthy inflation that countries should try and aim for, to a whopping 55%. Argentina ended 2018 with the second-highest inflation figure in Latin America, behind only crisis-wracked Venezuela. Inflation in Argentina is high because over the past years the government strongly expanded the money supply. The money-printing binge came after many years of fiscal deficits due to high government spending. Inflation in Argentina is high, as the Government has significantly expanded its money supply over the past few years. Because of high government spending, the currency printing spree took place after several years of fiscal deficits. Argentina’s inflation problem is rooted in its reliance on government spending.
It is no coincidence that public spending in Argentina has risen from 30% per cent of GDP to 46%-a terrible number over the past 12 years. Because Argentina’s tax burden is also high, it is not feasible to raise taxes in order to reduce the deficit. As a result, politicians are taking advantage of the printing of banknotes, leading to higher inflation. In other words, because of bad monetary policy, the government inherited high inflation. While central banks may be doing well, in the long run, the risk of failure cannot be ruled out because it ignores the deficit spending dynamics that I have just explained. The Argentine government has yet to send a clear signal that it will reduce its fiscal deficit and actually put the cart on horseback. If fails to solve the problem, all his efforts on monetary policy could be futile.