Economy Why Argentina has the most expensive clothing in the region and which items are the most expensive to buy - Infobae

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Why Argentina has the most expensive clothing in the region and which items are the most expensive to buy - Infobae​

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https://www.infobae.com/economia/20...uales-son-las-prendas-que-mas-cuesta-comprar/

September 06, 2024

A study by Fundar showed that the trend in these prices began with the end of convertibility. Some garments are competitive compared to other countries.


Argentines seek deals and quotas to cope with high clothing costs (Reuters)

The most expensive clothing in the region and the most expensive in the world are sold in Argentina . This trend began to be noticed in the country since the end of convertibility due to growing protectionism, tax pressure, high inflation and constant macroeconomic instability. However, some garments are found at competitive prices.


These conclusions are drawn from a Fundar report which compiled 390,000 online prices for 33 items of clothing at local and international level, with a reconstruction of statistical series for each of the countries analysed.


The study shows that in absolute terms a basket of clothing from Argentina's online channel at the official exchange rate was 35% more expensive than in the rest of the region in April and 16% more expensive if the MEP dollar rate is taken into account. The comparison was made against Peru, Uruguay, Mexico, Chile, Colombia and Brazil


In Argentina, the most expensive clothing in the region is currently sold at the official exchange rate (Fundar)

In relative terms, Fundar explained, an average item of clothing buys more goods and services in our country than in almost any other part of the world, even in the current context of considerable relative cheapening since the end of 2022. Between 2020 and until that year, the clothing and footwear sector was the chapter of the Indec Consumer Price Index (CPI) that increased the most.


“This sparked a controversy over the causes of the increases. The public debate oscillated between two positions. On the one hand, the critical views of the national industry blame protectionism and maintain that to lower prices one only has to open the economy and encourage imports. The other position argues that the high prices of clothing are due to a multiplicity of factors, all unrelated to the local production structure,” the think tank highlighted .


“The explanation for this phenomenon is more complex. Over the last two decades, high external trade protection was a central factor in justifying the differential evolution of clothing prices in Argentina compared to the rest of the world. But it is not the only one. The deterioration of macroeconomic conditions contributed to increasing the relative price of all goods, including clothing. It also affected the cost of financing, which in turn limited investment and the increase in productivity,” Fundar said.


Argentina is relatively cheaper and more competitive in knitwear and children's and baby clothing (Fundar)

The analysis shows that Argentina is relatively cheaper and more competitive in knitted garments and children's and baby clothing, but more expensive in woven products and adult clothing.

The country is also relatively cheaper in low-end clothing. “The other side of the coin of this phenomenon is that the price dispersion of clothing in Argentina is, along with Uruguay, the highest in the region. These findings represent valuable input when designing a policy proposal for this industry,” the report stated.

On the other hand, Fundar detected that the phenomenon of rising clothing prices began after the end of convertibility. Between 1994 and 2001, the relative prices of clothing and footwear in Argentina followed a similar trend to other countries and regions according to the survey.




From 2002 onwards, local prices began to rise and the trend deviated from that of other countries (Fundar)

“Starting in 2002, local prices began to rise and diverge from other trends. Since relative clothing prices were quite low in the country at the time, it was not noticed for quite some time that clothing was relatively expensive in Argentina. It was only in 2011 that Argentina began to have higher relative clothing prices than in the United States, Europe, and Latin America. Since then, (with the exception of the period 2016-2019 and 2023-2024) this trend has been consolidated. This explains why today in Argentina a piece of clothing “buys” more goods and services than in much of the world,” Fundar highlighted.

Differential price trajectory​

The report identified eight factors that influence Argentina having the most expensive clothing in the region and being among the most expensive countries in the world:

Primary causes

• The growing barriers to imports, particularly in the area of clothing, through tariff increases and the growing use of non-tariff measures, in a world where the trend was the opposite.
• Uncertainty and macroeconomic volatility, which have grown over the past decade and a half, have had a greater impact on goods than on services.
• The use of price regulation as an anti-inflationary anchor in sectors such as public services influenced the dynamics of relative prices, such that non-regulated prices - such as clothing - tended to rise above average.
• The real exchange rate and the exchange rate gap—which has been growing for much of the last 13 years—affected the prices of goods more than those of services.

In relative terms, Fundar explained, an average item of clothing buys more goods and services in our country than in almost any other part of the world (Fundar)
Secondary causes

• The growing tax pressure on production made goods more expensive, particularly those in longer chains with high national integration, such as clothing.
• The dynamics of domestic consumption and purchasing power had an impact at certain times, both through changes in demand and in labour costs.
• In practice, restricted access to credit increased the cost of financing, raised local costs and limited productivity increases.
• Sectoral productivity was stagnant and highly procyclical, which conditioned the generation of economies of scale and the reduction of unit costs.

“We consider the former as primary and the latter as secondary, because the latter only operate when one of the primary factors is active. In particular, high import barriers have been a condition of possibility for secondary factors to operate in practice, since they have allowed local producers to transfer increasing costs or demand pressures to prices, without being displaced by foreign competition,” Fundar concluded.