written by Alexander Milojevic
– President Jaview Milei speaking at Viva Europa 2024, May 19 – (Vox España, 2024).
Over the past few years in the United States, inflation has been the economic marker on the forefront of most financial news coverage. Due to inflation peaking at 9% in 2022, general economic outlook dipped to lows reminiscent of the 2008 financial crisis (Lebow et. al., 2024). Furthermore, many economists consider inflation to be a key factor in political momentum– one that played a definite role in the 2024 Presidential Election. While a 9% annual increase in price is impactful, the United States is one of the most stable nations when it comes to price stability. One only needs to take a closer look at the Argentinian economy to see just how much worse inflation can get (Goudreau, 2024).
In the United States, inflation is calculated by measuring the difference in prices over time between a predetermined basket of goods selected by the Federal Reserve. This system is also used by the Argentine government, although it is volatile and consequently more difficult to calculate (National Institute…, 2024). For instance, the Federal Reserve aims to maintain a long-term inflation rate of 2% annually. Currently, Argentinian President Javier Milei has just managed to get his nation’s inflation rate under 3% per month, a figure that is considered a resounding success by his cabinet and constituents (Nessi, 2024). As shown on the INDEC (Instituto Nacional De Estadística y Censos), monthly inflation in Argentina was historically worse than 2.7% (National Institute…, 2024). When Milei first took office in December 2023, monthly inflation was at an astounding 25.5%. For reference, this means that every two months, each peso lost approximately half its previous value. He was able to cut the monthly rate in half after one fiscal quarter with a March rate of 11.0%, only expanding on his progress with an all time low of 2.4% in November 2024, where it remains under 3% month-over-month (National Institute…, 2024).
Various factors can influence inflation, including shocks or unplanned pressures that impact an economy’s ability to maintain stable production supply or consumer demand. Classical theories of inflation, however, assert that a different supply– the money supply– also has much to do with raising inflation. The relevant aspect of the quantity theory of money dictates that the greater the amount of currency in circulation, the lower the purchasing power of said currency (Oner, 2019). In years past, Argentina’s money supply has done just that. According to the Cato Institute, year-over-year money supply growth was 199.9% in December 2023, when Milei took office (Dorn, 2024). As part of his plan to redirect the spiraling economy, Milei froze the money supply, prohibiting the central bank of Argentina from printing new pesos into circulation (Cachanosky, 2024). Another focus of Milei’s economic plan included massive cuts to deficit spending in the government. He also limited the central bank’s power to print currency for the Argentinian Treasury. On its own, this policy poses significant challenges. By freezing the money supply, he will certainly pause inflationary spending, but may bankrupt firms and households in the short term. If producers in Argentina cannot increase prices nominally to account for costly supply shocks, they may not produce at a level sufficient to keep the economy running. To combat this, Milei also tied the value of the peso to the American dollar, hoping to tether the relative value of the Argentine peso to a more stable economy and balance out the currency issues in the long run.
Despite his strategy’s effectiveness while Milei remains in office, political turmoil may stand in the way of these changes to take hold in the long run. To insulate against political battles destabilizing the economy, Dr. Nicolas Chachanosky, an Associate Professor of Economics at the University of Texas and expert on the Argentinian economy, argues that a complete dollarization of Argentina would be more prudent: “[dollarization] remains the monetary regime with the most potential for long-term stability in Argentina. It offers a credible pathway to restore confidence and put the country back on a sustainable economic trajectory” (Cachanosky, 2024). Given some of Milei’s budgeting policies, it might be safer to place monetary policy changes out of reach for the next administration.
Perhaps the most controversial of Milei’s actions has been his vast cuts to government spending. For the first time in 14 years, Argentina reported a budget surplus at the end of 2024 (Madry, 2025). In other words, the government is now spending less than what they accrue in taxation. Given the longstanding budget deficit of the United States, this may sound counterintuitive. This practice stems from the overall health and long-term dependability of the American economy. Budget deficits essentially function as a way to borrow money from the future in order to lessen the impact of current shocks to the average citizen (a process called consumption smoothing). The reason that the American federal government maintain a deficit is largely due to the high degree of confidence in the future success of the American economy (Center on Budget…, 2024). In Argentina, the situation is notably different. Given the tumultuous history of the Argentinian economy, it is likely in Milei’s best interest to avoid deficits in the event of a significant economic downturn.
An additional symptom of Argentina’s economic troubles comes from a lack of long-term growth in real output per capita (measured as inflation-adjusted Gross Domestic Product per person, or real GDP per capita). To combat this long standing issue, Milei has also made drastic changes to regulation policies in Argentina. This policy coincides with a significant 2002 study titled “The Regulation of Entry,” which surveyed the costs associated with starting a business across 85 countries. Ultimately, the researchers found that the healthiest and wealthiest economies boasted much cheaper and shorter boundaries to entry, while regulatory roadblocks could take months among the poorest nations surveyed (Djankov, 2002). By removing many of these roadblocks, including erasing all electric vehicle charging restrictions, Milei seeks to “get the state out of the way” in order to promote significant growth in the coming years (Elliot, 2025).
With Milei’s early success in squandering inflation and regulation, economic recovery could be on Argentina’s horizon. No economic policy is without its downsides, however; due to Milei’s currency freeze, production shocks are hitting labor-intensive industries especially hard, causing the poverty rate to spike to jump 11 points to 53% as of 2024 (Ventura, 2025). While concerning, friction is to be expected as the current administration fundamentally reroutes the economy. By making such decisive changes to Argentina’s financial system, Milei is staking his future political success on an imminent production boom.
References
Cachanosky, N. (2024, July 19). Milei’s new monetary regime for Argentina. The Daily Economy. https://thedailyeconomy.org/article/mileis-new-monetary-regime-for-argentina/
Center on Budget and Policy Priorities. (2024, November 20). Policy basics: Deficits, Debt, and Interest. Center on Budget and Policy Priorities. https://www.cbpp.org/research/federal-budget/deficits-debt-and-interest
Djankov, S., La Porta, R., Lopez-De-Silanes, F., & Shleifer, A. (2002, February). The Regulation of Entry. Quarterly Journal of Economics, 117(1), 1–37. https://scholar.harvard.edu/files/shleifer/files/reg_entry.pdf
Dorn, J. A. (2024, March 21). Money Still Matters: The Case of Argentina. Cato.org. https://www.cato.org/blog/money-still-matters-case-argentina
Elliot, L. (2025, January 29). Argentina deregulation tsar: Milei’s “chainsaw” cuts to go deeper in 2025. Reuters. https://www.reuters.com/world/americas/argentina-deregulation-tsar-mileis-chainsaw-cuts-go-deeper-2025-2025-01-29/
Goudreau, C. (2024, November 20). The impact of inflation on the 2024 presidential election. The Hub. https://hub.jhu.edu/2024/11/20/how-inflation-impacted-2024-election/
Madry, K. (2025, January 17). Milei’s Argentina seals budget surplus for first time in 14 years. Reuters. https://www.reuters.com/world/americas/argentina-logs-first-financial-surplus-14-years-2024-2025-01-17/
Lebow, David, and Ekaterina Peneva (2024). “Inflation Perceptions During the Covid Pandemic and Recovery,” FEDS Notes. Washington: Board of Governors of the Federal Reserve System, January 19. 2024, https://doi.org/10.17016/2380-7172.3439.
National Institute of Statistics and Census of the Argentine Republic. (2025). Instituto Nacional de Estadística y censos de la república argentina. INDEC. https://www.indec.gob.ar/
Nessi, H. (2024, December 10). Argentina monthly inflation seen under 3% in November, but Sticky. Reuters. https://www.reuters.com/markets/argentina-monthly-inflation-seen-under-3-november-sticky-2024-12-10/
Oner, C. (2019, July 30). Inflation: Prices on the rise. International Monetary Fund. https://www.imf.org/en/Publications/fandd/issues/Series/Back-to-Basics/Inflation
Ventura, L. (2025, January 2). Milei Ends Argentina’s Deficit After 123 Years. Global Finance Magazine. https://gfmag.com/economics-policy-regulation/argentina-milei-administration-eliminates-deficit/
Vox España. (2024). Vox España. photograph, Viva Europa 2024; Vox España. Retrieved from https://www.flickr.com/photos/voxespana/53732399513/in/album-72177720317092397