How Javier Milei calculated that inflation could reach 15,000%

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Cómo calcula Javier Milei que la inflación podría llegar al 15.000%

“The outgoing government left us with hyperinflation.”, warned the new president Javier Milei in his inaugural speech. He explained the legacy left by Kirchnerism “This is an inflation of 15,000% per year that we will fight to eradicate.”.

To reach the stratospheric figure, Milei took as a reference what happened in the two biggest inflationary cycles that Argentina has gone through: the Rodrigazo of 1975 and the hyperinflation of 1989/90.

What is Rodrigazo?

After the death of Juan Domingo Perón in 1974, his wife and new president María Estela Martínez applied a strong plan to adjust the Minister of Economy, Celestino Rodrigo.

That plan that went down in history as the Rodrigazo, was based on a devaluation of the peso, an increase in public service fees, and salary caps for joint ventures.

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With this plan, prices jumped from 24% to 182% in less than a year, with a strong shortage of energy and products. The effects of Rodrigo continued to be felt in 1976 and worsened after the coup of March 24 and thus closed the year with a jump of 444%.

Rodrigo began a cycle of annual inflation of more than 100% that lasted 17 years.

1989 hyperinflation

At the economic level, the government of Raúl Alfonsín was marked by rising prices and the deficit.

In 1989, at the end of his mandate, inflation exploded when the Central Bank ran out of reserves after the failure of the Austral Plan.

In May of that year, monthly inflation reached 114%, with a deficit of 14.5%. In this context, the presidential election was held, won by Carlos Menem, and the crisis forced Alfonsín to bring about a transfer of command. The year closed with inflation of 3079%.

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The crisis continued in the first year of Menem, which closed with inflation of 2314% in 1990. Only in 1991 and the implementation of Convertibility will break the cycle of almost two decades of high inflation.

In talking about a potential inflation of 15,000%, Milei is based on the fact that as a result of the strong monetary issue created by Kirchnerism and equal to 30% of GDP, today the “too much money” (the excess peso that circulates in an economy that flees from the national currency) “This is double what happened before Rodrigazo, which multiplied the inflation rate by 6.”

With a peso surplus higher than in 1975, “A similar event means multiplying (the prices) by 12, and given that it is traveling at a rate of 300% “We can move to an annual inflation rate of 3,600%,” Milei said.

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To this, the president added the impact of the “paid debts” of the Central Bank, which is now “worse than during Alfonsín’s time, “In a short period the value of money can be quadrupled and thus inflation can reach 15,000% per year.

“This is the legacy they left us. This number, seemingly unreasonable, shows inflation of 57% per month. Now it is between 20 and 40% for December and February.

To add to the drama he maintains that the “top priority” is to “Make every possible effort to avoid such a disaster that will lead to poverty of more than 90% and destitution to 50%.