(Bloomberg) -- Poverty levels in Argentina spiked as inflation soaring above 124% undermines household purchasing power, fueling despair ahead of a heated October election.
About 40.1% of Argentines were living in poverty in the first half of the year, up from the previous level of 39.2%, according to government data published Wednesday. It’s below the peak seen during the pandemic but a clear sign that inflation is devastating Argentina’s society and economy, which is careening toward its sixth recession in a decade.
Surging consumer price increases are the dominant factor behind the country’s ballooning poverty ratre. Wages for informal workers, who tend be poorer than salaried payroll employees, were up 82% by June while inflation accelerated past 115%, meaning they lost significant buying power. Following an 18% devaluation of the peso in mid-August, prices for staple foods like milk and flour posted 17% increases in August.
When a church in an impoverished community in Buenos Aires recently distributed donated beef to about 40 families, the reaction among those who missed out was “virulent,” priest Pedro Baya Casal recalled.
“The level of despair for a piece of meat enough for a single day’s stew was painful. You make a donation, hoping it will bring some joy and it ends up being a tragedy,” he said.
The majority of families Baya Casal serves plan to vote for libertarian outsider Javier Milei, who proposes disruptive ideas like dollarizing the economy and closing down the central bank to squash inflation. Milei came in first in an August primary vote, with around 30% of votes.
Economy Minister Sergio Massa, who is also running for president and came in third in the August vote with 27%, is pulling out the stops to alleviate the costs of inflation for the poor. Massa announced Tuesday that millions of informal workers would get $268 in welfare checks in the next two months, after recently scrapping income taxes for all but the top 1% of earners.
With net reserves deep in the red, the country is reverting to printing money to finance spending, which could well exacerbate inflation. Argentina’s worsening economic crisis poses a major challenge for the next government and its ability to pass the austerity measures needed to address the fiscal deficit, a condition of the International Monetary Fund’s $44 billion program that refinances payments Argentina owes the institution from a previous bailout.
Argentina’s economy suffered the worst quarter since the peak of the pandemic between April and June, with a 4.9% annual contraction. Economists forecast that Argentina’s economy will shrink 3% this year.
Argentines will vote in a general election Oct. 22. If no one candidate scores more than 45% of votes, or 40% with a 10 percentage-point lead, a runoff vote will take place Nov. 19.
©2023 Bloomberg L.P.
BNN Bloomberg Picks
Declining prices shift Canadian views of homes as investments
How will the Canada 'mortgage charter' impact homeowners, bank earnings?
Here are the key takeaways from Canada's budget update
'A long time coming': Ottawa looks at requiring corporate climate disclosures
Rona Ambrose: Fiscal update 'very concerning' for Canadians
Business leaders 'disappointed' with fiscal update details