If a hyperinflation happens and nobody notices, is it a hyperinflation?
Observatorio Argentino 60: Argentina went through a very short and sharp hyperinflation last week; consequences unknown
Did Argentina briefly enter hyperinflation over the last couple of weeks?
There have been more than a few massive price jumps in Argentine supermarkets. But that’s all anecdotal, even if it’s your own anecdote: Americans all the time panic over inflation because the price of eggs went up, ignoring the fact that beef got cheaper.1 (We know, we are very carnivorous in both countries.) So we went to find the real numbers.
Ecolatina, a private consultancy, just published its estimates of monthly inflation for the first half of December. The headline number for month-on-month inflation looks like this:

Remember, these are monthly rates. If you annualize them, then you get the following:

Yes, Argentina briefly entered hyperinflation this month.
The combination of the devaluation of the official exchange rate and the end of Argentina’s peculiar system of price quasi-controls sent inflation through the roof. If you needed any explanation as to why the country seems so on edge, you have it.

There are a whole lot of questions, of course! The big one is economic: is the recent price jump a necessary adjustment or the harbinger of hyperinflation?
Let’s go through the two scenarios:
We’re all doomed
People know that Milei intends to get rid of the peso. There is some exchange rate at which dollarization becomes feasible and another at which it becomes trivial—the peso just needs to find it! As people expect the peso to fall, they don’t want to hold pesos: they just hand them off to someone else as quickly as possible. Economists call that an increase in the “velocity of money.” That generates inflation all by itself.
MV = PY
M = money supply; V = velocity, or the number of times in a year that money changes hands in a transaction, P = the price level, Y = the real volume of goods and services produced and sold
Now remember that banks can create money without the central bank. You deposit pesos equivalent to US$100 in a bank. You have a $100 deposit that is as good as cash. Since Argentina’s largest banknote is worth only two U.S. dollars, a bank deposit is better than cash!2 The bank then lends out that $100 to somebody else. So now you have $100 in deposits and they have $100 in cash — voilà! Money has been created, and no state institution had to print banknotes or mint gold coins or anything.
Right now, the Banco Central de República Argentina (BRCA) limits this process by borrowing from the banks. So instead of lending out the resources and creating more money, the banks plonk the cash go into the central bank and it sits there. These short-term loans from the banks to the central bank are called “Leliqs,” pronounced “leh-leeks.”
But the central bank wants to stop doing this, because it needs to print money in order to pay interest on the Leliqs. That, of course, also generates inflation—in modern Argentina, inflation is everywhere! The government is trying to unwind the process by converting the Leliqs into long-term lower-interest federal debt, paid for from future taxation.
Argentina just managed to place US$3.7 billion in new federal debt, so this could work. But it could also fail! Who knows if Argentina can place enough debt to retire all the Leliqs? In that case, the only way to unwind them would be for the central bank to just stop borrowing from the banks.
But remember, in Argentina, inflation is everywhere.
If the central bank stops borrowing, then it will pay off the Leliqs in cash. It will now be off the hook for future interest. But the banks will now need to do something with with all the cash that used to be tied up in the Leliqs.
“Something” probably means lending it out … and voilà. More inflation!3
And thus inflationary pressures could grow from three different directions, even if President Milei gets a handle on the budget deficit!
Velocity goes up because people believe the peso will soon be abolished —> accelerating inflation.
The central bank still needs to print money to pay interest on the Leliqs —> accelerating inflation.
If the central bank pays off the Leliqs, then the private banking system will start creating more money —> accelerating inflation.
In this view, the December jump isn’t a one-time thing, it’s a real acceleration. Argentina has entered hyperinflation and will stay there until the Milei government does something even more drastic.
Calm down, it’s a one-time adjustment
In 1982, Tom Sargent pointed out that the four big post-WW1 inflations just ended, poof, like that, once the government stopped financing budget deficits by printing money. In other words, once the public saw that the root cause of the hyperinflation was over, they stopped raising prices. Now, to be fair, the recent ending of various Latin American inflationary episodes (discussed in point 4 of this entry in this substack) was not quite that immaculate, but it came close. Governments cut deficits and anchored their exchange rates, which rapidly ended high and hyperinflations.
In this view, the recent jump in prices is what you would expect from lifting price controls and devaluing the exchange rate. After all, the price controls had really begun to bite in the last few months, with periodic shortages gripping the shelves.

According to Ecolatina, health costs rose 38%, entertainment jumped 35%, household goods and appliances leapt 28%, and food and drink increased 16%. But that’s what is supposed to happen! After the price increases, people will buy less and that will restrict (or reverse) future price increases. In fact, there are already signs of this, with beef prices going down because people can’t afford to buy as much beef.
So which is it?
We think the second scenario is more likely, with a “but.” (There is always a but! Professor Abad’s license as a card-carrying macroeconomist would be suspended if she didn’t give at least one caveat.)
The “but” is political. The Milei administration is trying shock therapy — cutting spending, raising taxes (our next post), weakening unions, privatizing money-losing enterprises (yes, even this one), and deregulating. This has, unsurprisingly, engendered a lot of opposition. Most of it has been fairly predictable. But there are three potential coal-mine dwelling canaries starting to look a little sick:
There is a little squishiness on the center-right about the deregulatory decree, with Horacio Larreta expressing doubts. Not about the substance; about the desire to bypass Congress.4 Now, Milei doesn’t need the decree to stop hyperinflation—but in the unprecedented event that the joint standing committee or the full Congress stops it, then the rest of his program will be in doubt.
The courts are starting to get involved, with groups suing about the constitutionality of the decree. Now, precedent is strongly against them. But courts ignore precedent all the time — in the U.S., lower court judges tied both the Trump and Biden administrations in knots even when the Supreme Court ultimately upheld the executive actions. It’s extraordinarily unlikely that the courts will stop Milei … but a year ago it seemed pretty bloody unlikely that Milei would get elected.
There are sign of spontaneous unrest out in the suburbs. The below video was taken in the suburb of Pilar when someone we know decided to take her kids out of their darkened neighborhood during a blackout and stay at a friend’s house. Angry people had dragged tires and downed trees into the road and set them on fire; they also pelted passing cars with rocks and yelled anti-government slogans.
The protests in the city center that you hear about in the news aren’t the important ones. The Milei administration’s threats to deny protestors access to income support have gotten a lot of attention. Except that didn’t happen! What did happen was that Patricia Bullrich, the homeland security minister, announced that anyone caught blocking streets without a permit could be fined for the cost of calling out the police.5 They also set up a hotline for people receiving federal benefits who felt pressured to attend a demonstration. There are continuous cacerolazos in the capital — banging of pots and pans in protest — but so far everything has been relatively peaceful and unlikely to sway the administration. It is the spontaneous stuff out in the suburbs or provincial cities that we would watch.6
The first canary is looking sick. Milei’s people appear to have lost control of the selection process for the Senate’s eight appointees to the joint standing committee. The Radical Civic Union’s (UCR) candidate looks likely to vote against the reforms, as does one of the two Milei-allied Peronists. Add those two to the to the three seats gained by the Homeland Union’s (U.P., for its Spanish initials), and you have five votes against. Considering as the opposition U.P. looks set to pick up at least four of the eight seats appointed by the lower house, it looks like the decree may be struck down 9-7 unless the administration can convince the UCR and conservative Peronists to vote in favor or manage to cut the U.P. down to three seats.
One of us thinks the remaining two canaries will survive, the other worries a lot about the third. (Here is an earlier post, “Fear of Falling,” which goes into the real reasons why Argentines fear unrest.) President Milei can probably steer Argentina out of the current mess; the problem isn’t that intractable, as this substack has pointed out. But we have also pointed out that it less clear that Milei, with his radicalism and his confrontationalism, has the chops to pull it off.
Call us cautiously optimistic. Well, call the naturalized wannabe Argentine “optimistic” and the Argentine-born American “cautious,” although neither of us expects a sustained hyperinflation.7
Keep watching this space for your Argie explainers! Feel free to ask us anything in comments; if we know the answer (or can figure it out) we’ll write a post about it.
Diet Coke prices in the USA, however, are definitely up. Damn you, Joe Biden!
In 1993, Noel went out with a big group of USP students in São Paulo to get pizza. (It wasn’t bad pizza!) Somebody paid for it with a check that the pizza place somehow miraculously verified using 1993 communications technology. Brazil during its hyperinflation felt like visiting the future: credit cards accepted everywhere, checks magically verified, bank accounts paying daily interest.
It is actually a bit more complicated than this, because the BCRA restricts liquidity via various instruments called “pases pasivos,” and not just the Leliqs. But the above captures the general idea.
Relatedly, the Radical Civic Union is part of Milei’s coalition, but at heart it is a center-left party. It would take a lot of negotiation to get their support. It could be done, but it is not clear that Milei’s team can do it.
So what did they do? They demonstrated in the bike lanes!
The B.A. suburbs are under Governor “Kichi” — Axel Kiciloff is the full name, we met him in person in 2012 — and like the good Peronist that he is, he has refused to call out the police against the demonstrators.
Abad here: you can call it “caution” or you can call it “terror,” it’s all a matter of degree. How about we set the lower bound as “worry”?