Inflation is a topic that receives increasing analysis and commentary in the news. It's an economic phenomenon that's easy to perceive; one only needs to observe the price increases in the goods and services we buy each month. However, measuring it is complex , and identifying all its consequences is even more so.

The National Institute of Statistics and Censuses (INDEC) reported that the Consumer Price Index (CPI) rose 5,4% in June , bringing the accumulated variation for 2022 to 36,2% (January-June) and placing the year-on-year level at 64% , the highest percentage change in the last 30 years. The CPI is often used to estimate inflation across all prices, but this is incorrect. The CPI measures changes in the prices of a representative basket of consumer goods, the selection of which is relatively arbitrary. Inflation, on the other hand, occurs when all prices in the economy rise and do so consistently.

This report emphasizes the effects of inflation on society, focusing on Argentina's experiences with inflationary processes. Why is it important to analyze inflation? In modern economies, the economic problems of what, how, and for whom to produce are largely resolved in markets, where individuals use price information to make decisions and, consequently, allocate their resources. Therefore, if prices change constantly, the available information becomes confusing and can lead to, among other things, inefficiencies in the allocation of available resources.

Throughout its history, Argentina has been characterized by numerous inflationary and hyperinflationary episodes . This report divides Argentine history into periods that share some common characteristics related to price behavior: 1914-1944, 1945-1974, 1975-1991, 1992-2001, and 2002-2022.

Commenting on the last two periods , we begin with the decline in inflationary inertia in the first months of 1991, followed by 104 months with an average annual inflation rate below 2%, a period known as deflation. In other words, a historically low rate was maintained for more than eight years. From 2002 onward, inflation appears to have followed an upward trend, although periods of both rising and falling inflation have occurred. As the years have passed, increasingly higher levels of price increases have been recorded, reaching the current annual rate of 64%.

The consequences of inflation are severe, primarily economic, and borne most heavily by those with fewer resources. However, the effects of this problem are not only economic; they also extend to the morale and psychology of citizens. Inflation functions as a tax on existing money balances (the banknotes in people's hands being the tax base), a tax that lacks the approval of the people's representatives and provincial governments, as it has not been submitted to elected legislators for consideration.

The effects analyzed in the report are:

• economic costs: the loss of purchasing power, which occurs because the real cost of goods and services increases, that is, family income is less and less enough.
• Anticipated inflation: inflation expectations are reflected in higher interest rates, this raises the opportunity cost of holding money, “shoe sole cost”, “menu cost” “Olivera-Tanzi” effects.
• Unanticipated inflation: It is not included in contracts and, therefore, in forward contracts, one party always loses while another wins. In general, the creditor loses and the debtor wins.
• Costs in both anticipated and unanticipated inflation: competition to maintain customers, companies try to transfer as little as possible the increase in costs generated by inflation to the prices of their products, the "reduflation" effect.
• Macroeconomic costs: Inflation encourages current spending and punishes the saver, in episodes of high and persistent inflation it generates a decrease in investment (Gross Capital Formation) and results in lower growth rates of the economy (Gross Domestic Product).

The most profound consequences of inflationary periods, known as " hyperinflation ," are generally marked by the aftermath of war or external crises. The report presents hyperinflationary situations in Europe: the USSR, Germany, Hungary, and some countries after the fall of communism; and in South America: Bolivia, Peru, Brazil, Venezuela, and Ecuador.

In conclusion, the most direct and economic consequence of inflation is the loss of purchasing power for families. Individuals' incomes deteriorate in real terms, meaning they buy less and less. But inflation also affects people's behavior and even their psychology.

The costs to the economy as a whole, from a macroeconomic perspective, are even more serious. First, overall savings decrease and uncertainty about the future increases. Public policies lose credibility and the financial system weakens. All these effects harm real investment , which is the most important source of productivity growth . Therefore, the most significant negative consequence of high and persistent inflation is economic stagnation.

Secondly, from a macroeconomic perspective , the damage caused by high inflation appears to fall disproportionately on lower-income individuals. In other words, inflation, partly generated by the Central Bank's monetary expansion to finance successive public deficits, functions as an untaxed and regressive tax.

Of course, the problems caused by inflation are not unique to Argentina ; there have been significant hyperinflationary events throughout history. Currently, inflation is rising in most countries worldwide; however, Argentina's inflation rate is above the average for comparable countries. For example, in Latin America, between January and June, only Brazil (11,85%), Argentina (36,2%), and Venezuela (53%) exceeded double digits year-on-year inflation.