Inflation takes the shine from Argentina’s border towns

Nanawa — Paraguayan shoppers used to flock in their droves to the border town of Nanawa to buy cheap imports from Argentina, where the weak peso currency for years kept relative prices low for fuel, medicine and groceries smuggled in across the frontier.

Now Nanawa is a ghost town, with prices of the contraband pushed up steeply by Argentina’s rare mix of almost 300% inflation and a propped-up peso that has even rallied against the dollar in widely used parallel markets under libertarian President Javier Milei.

“Before, things worked very well, we sold everything,” said Marta, a pharmacy employee in Nanawa, who only wanted to go by her first name. “Now there is nothing left. For two months we’ve been like this, the town is dead.”

Shopkeepers in Nanawa, 30km from capital Asuncion, estimated to Reuters that sales had plunged between 60% and 80% since Milei took office in December, when he sharply devalued the official peso currency and ushered in austerity.

Since then the peso has been allowed to depreciate just 2% a month on a controlled “crawling-peg”, and monthly inflation — while slowing — has been about 10%-20% each month. That has meant prices in dollar terms have soared.

Something that cost 1,000 pesos on January 1 would have been worth $1.24 at the official exchange rate that day. With 65% accumulated inflation to end-April, that same product would have cost 1,650 pesos, worth $1.88, on April 30, a more than 50% rise.

That has made Argentina far more expensive in relative terms, stoking claims by analysts that the peso is overvalued and calls for another devaluation. Meanwhile, tourists and exporters have felt the pinch of less competitive local prices.

“For Argentina this process is painful,” said economist Gimena Abreu, who analyses relative prices across on the Uruguay-Argentina border at the Catholic University of Uruguay, adding that in the short term exports and tourism would be hit.

Data from her team shows the price gap between Uruguay and Argentina plunged from 180% in September before Milei took office to 50% in March as Argentine relative prices shot up.

“In the short term, Argentine exports will become less competitive,” Abreu said. Argentina’s top exports include soy products, corn, wheat, beef, energy products and automobiles.

That has increased costs for regular Argentinians, hitting consumption. A kilogram of beef last September cost on average 2,846 pesos (about $3.70 at freely accessible parallel exchange rates then), official data shows, much cheaper than a minimum of $7 in regional capitals like Montevideo and Santiago in Chile.

The latest data in April shows the Argentine beef price at 6,505 pesos, nearly $7, largely erasing the cost advantage.

“My relatively comfortable dollar income lifestyle has gone to the other extreme,” said Buenos Aires resident Paige Nichols, who moved to Argentina from the US 17 years ago. “I now need to be very mindful of what I’m spending.”

Nichols told Reuters her monthly household expenditure had shot up by about 150% since the December devaluation, driven primarily by health insurance, utilities and groceries.

Products like olive oil and toothpaste are becoming small luxuries. Reuters found on average a 500ml bottle of olive oil cost $15 in Buenos Aires, with some brands priced as high as $26. Colgate toothpaste was 4,976 pesos, or $5, for a single 90g tube, twice what retailers charge in Paraguay and Uruguay.

Nichols, who works in the travel sector, said once-cheap prices for tourists were getting in line with regional neighbours and even the US. She said dining out in Buenos Aires was almost twice as expensive as a year ago.

Despite that, government data shows that incoming tourist numbers were up in the first two months of the year, though there are signs of strain as prices rise, a potential risk to the $3.2bn travellers brought into the economy in 2023.

Between January and March 2024, arrivals from neighbour Uruguay — who spent $1.3bn in Argentina in 2023 — fell 25% versus a year ago, Uruguayan outbound tourism figures show.

Border towns in Paraguay, Chile and elsewhere have seen lower local demand for Argentine imports, but others have cheered the shifting trend, which has also meant fewer locals making day trips to Argentina to look for bargains.

“What I will say is I’ve heard of fewer people crossing over the bridge to Argentina to shop,” said Uruguayan cafe owner Lilian who runs Helianthus Bistro in the border town of Fray Bentos, just across the Uruguay River from Argentina.

“Things are getting more expensive there, so there are no longer lines of cars bumper to bumper crossing the bridge.”

Back in Nanawa, supermarket employee Raquel Alvarenga said flourishing demand previously for cheaper Argentine imports meant the store had to expand outside its doors to deal with the number of customers. Now that was over.

“It has been quite damaging. Sales have dropped by 50% and it’s hitting trade.... Argentine businesses raise their prices through the sky constantly. They change every day,” she said.

“Before, we had to serve people outside because we couldn’t fit everyone in the store. Now we have time to drink [local tea] terere.”

Reuters