Inflation's reappearance worries South Americans

LA MATANZA, Argentina — Miguel Mendez's wages as a restaurant cook haven't risen much over the past year, but the price of potatoes where he shops has doubled. Prices also have skyrocketed for tomatoes, apple cider, sweet bread and other foods.

"We're feeling it at home," said Mendez, who lives in this middle-class city outside the Argentine capital, Buenos Aires. "We spend more money now for less."

In South America, the age-old curse of inflation is making a comeback.

Prices in Argentina and Venezuela, which have seen robust economic growth over the past four years, have risen by nearly 20 percent this year, economists estimate. For Argentina, that's the highest rate since 2003, when the country was wrestling with an economic crisis. For Venezuela, the rate is the highest since 2004, when the country was emerging from a deep recession.

Prices are surging by the highest rate in years in other countries too. In Bolivia, inflation is expected to pass 11 percent, the highest in a decade. Prices in Uruguay have risen by 9 percent, the highest since 2004. Inflation rates have hit about 7 percent in Chile and Paraguay, also recent highs.

Those rates are still only a fraction of the inflation that gripped South America in the 1980s, when annual rates were so great that Bolivians started weighing their money instead of counting it and Argentina kept lopping zeros off its currency and changing its name. Not all countries are seeing the increase, either: Brazil's inflation is down, thanks largely to government policies on slowing economic growth.

But economists worry that some countries could lose control if inflation rates top 20 percent. Adding to the problem, inflation in nearly every country on the continent is outpacing economic growth.

"It's very hard to have consistently high inflation without seeing it spiraling out of control," said Dan Kerner, an economist at the U.S.-based consulting firm the Eurasia Group. "If these imbalances continue, people will fall behind."

The return of inflation is a byproduct of prosperity. South American countries that export soy, petroleum and other commodities have enjoyed billions of dollars in new revenues as countries such as China and India grow at double-digit rates.

Argentina has racked up a $7.2 billion trade surplus this year, while Bolivia accumulated a trade surplus of $670 million from January to July.

Such trade has given the region its longest period of sustained economic growth in three decades. As a result, the number of poor Latin Americans dropped below 200 million for the first time in 15 years, a U.N. commission reported this week.

The flip side, however, is that prices have risen. In Argentina, the price of basic household foods rose by more than 11 percent in the first two weeks of November, according to the research group Equis.

Protests have become common in some countries. Bolivian drivers blocked roads this week to protest inflation and a shortage of diesel fuel.

Price controls on basic foods in Venezuela have led to shortages and, in some cases, long lines outside markets.

Adding to the problem are industries, particularly energy companies, that haven't expanded fast enough to meet demand. That's led to shortages that have contributed to higher prices, said Juan Luis Bour, chief economist at the Argentine research group the Latin American Economic Investigations Foundation.

He and other economists said that governments needed to cool economic growth and cut spending to halt inflation. Rising inflation threatens to eat into people's economic gains and derail growth, he said.

"If you have inflation of 20 percent, you need to act today with maximum force," he said. "If you don't do anything today, it'll get even harder to fix the problem later."

But few countries have been willing to rein in growth.

"Many governments really see inflation as a tolerable tradeoff for growth," said Mark Weisbrot, co-director of the U.S.-based Center for Economic and Policy Research. "What governments will try very hard not to do is crash economies to bring down inflation."

In Argentina, the government rejects economists' inflation estimates and insists that prices are rising at an annual rate of only about 8.4 percent. The country is continuing to spur economic growth by raising public-sector wages and spurring exports while instituting price controls on everything from natural gas to produce.

Argentina's president-elect, first lady Sen. Cristina Fernandez de Kirchner, has proposed building a "social pact" between businesses and workers to rein in wage increases and rising prices, a strategy that's inspired more doubt than hope.

"I get the impression Argentina will take half-measures and do it all too late," Bour said.

Bolivia's government has responded by asking people to eat more price-stable foods such as chicken and eggs rather than beef and rice.

Inflation probably will get worse before it gets better, especially in oil-rich Venezuela, where prices are expected to rise by more than 20 percent next year, said Jose Guerra, a former chief of economic research at Venezuela's Central Bank.

With billions of petroleum dollars funding Venezuelan President Hugo Chavez's social programs, more money will pour into the economy and push prices upward, he said. The country's heavily overvalued currency also is stifling domestic production.

"We're entering a dangerous area now," Guerra said. "We've seen good economic growth, but that's threatened."