the case of Venezuela and Argentina after freezing food prices

Inflation is one of the biggest challenges the world economy has faced this year. The war between russia and ukraine has generated a increment in energy prices in Europe, while in the rest of the world it has caused an increase in food prices due to the rise in the value of fertilizers, since Russia is the main supplier of these inputs.

Despite the efforts of central banks around the world to try to reduce inflation by raising intervention rates, the Consumer Price Index (CPI) continues to grow.

In Colombia, the accumulated inflation until September reached 10.8% and the interannual one to 11.44%, marking a new record of two decades, according to data from the National Administrative Department of Statistics (Dane). The Colombian Minister of Labor, Gloria Ines Ramirez, stated that “a freezing of the basic basket was not ruled out, because the salary increase is 10% and when basic household products increase by 12%, this means that the purchasing value is higher for the costs.

In Mexico, on the other hand, the federal government has promoted a price stabilization policy, which has been in force since May 2022. Although it is not a price control, it is an initiative in conjunction with the private sector to guarantee that some prices of 24 products in the basket stop their rise.

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Although some products have managed to stabilize, the items of processed and agricultural foods are still pushing upwards.

The general inflation rate in Mexico stood at 8.7% in September 2022, while for agriculture it jumps to 15.05 percent. On the other hand, for processed foods and beverages, the rate was 13.96 percent.

After five months of operation of the program, it is observed that, although its scope has been modest, there have been no counterproductive or regressive effects.

This measure has been implemented in other countries in the region such as Ecuador, Venezuela, Argentina and this year in Panama. But how have their economies fared, and how convenient is it for Colombia to do so?

If Colombia decides to freeze the prices of the products of the family basket, it could experience an inflationary acceleration at the moment it unfreezes the values ​​and corrects the exchange rate,” said José Arango, an economic analyst.

In 2011, Venezuela decided to freeze food prices to try to deal with inflation, which at the time was running at 23 percent. In addition, since 2003 the Venezuelan government has controlled prices for products considered essential, such as rice and oil. This prevents external agents from aggressively affecting the value of the items in the family shopping basket.

However, these prices became artificial values, since they did not show the real situation of supply and demand. In addition, when ending the measure and unfreezing prices, the effects began to be felt and the CPI increased to maximums, this, added to the political and economic instability of the country, led to hyperinflation, of which, until the beginning of this year they managed to get out, although they still have the highest inflation in the region (111.8% accumulated and 157% year-on-year).

“This acceleration of the inflation rate occurs in a context of significant intervention by the BCV (Central Bank of Venezuela) in the foreign exchange market to try to stabilize the exchange rate,” assured the Venezuelan Finance Observatory (OVF).

Another of the countries that has implemented the price freeze is Argentina, where the president, Alberto Fernández, created the ‘Careful Prices’ program with which he controls food costs. However, this has not had good results so far, as its inflation continues to grow and is the second highest in Latin America, with a year-on-year CPI of 83%, the highest figure in the last 30 years.