Tourism usually pushes up the inflation rate for the summer months in Argentina. The local government got the main businesses in the sector to freeze prices to avoid that — and to have proper development of the busiest season of the year. What are the implications?
In a highly unsual move this week, Argentina put a lock on the prices of good and services associated with tourism.
The decision by Argentine President Alberto Fernandez and Tourism Minister Matías Lammens will keep the freeze on until March 15.
In a country that is no stranger to sudden rule changes, prices will often vary almost daily, but this freeze on tourism is a first. Inflation in 2021 will end up totaling about 50 percent, according to private consultants.
Tourism tends to push up that result in January and February, when locals go for summer vacations, so the government designed this measure to lower the impact and offer domestic travelers some stability.
However, Lammens said the measure is a response to higher demand in what will be one of the best seasons in the decade.
“The sector has had a very interesting second semester, after two very bad years following the 2018 devaluation and the pandemic. The side effect is the increase in prices”, Pablo Singerman, an economist and director of the Economy and Tourism Management Master’s degree in Buenos Aires University (UBA), told Skift.
“Our inflation is multi-cause, and is usually propelled by expectations — people buying to secure prices, companies increasing tariffs to protect themselves from inflation, et cetera — so predictability this will hopefully calm expectations and lower inflation”, he added.
Freezing prices is not uncommon in Argentina but is usually applied to basic goods as food, beverages and medications. “There have been similar measures for tourism in the past but it was not called ‘price freeze’. It was presented as an agreement between the government and the private sector”, said Singerman.
The last price freeze on food and beverage began in September, after the current administration was defeated on the primary elections. The goal was lowering inflation to less than 3 percent a month. The plan has not fulfilled that promise and will be replaced by a different control scheme in January.
But Argentine history teaches these measures are not entirely useless. Singerman explained that “a price freeze or an agreement is useful if it is for a limited period of time, needed to calm a severe demand shock and avoid a hike.”
How Will It Work?
Hotels, airlines, restaurants, beach resorts and event organizers will provide a list of price ranges corresponding to December 2021, and commit to maintain them until March 15.
There will be monthly meetings between government officials and tourism chambers to evaluate progress, and weekly price checkups carried out by ministry employees.
Franco Di Pasquo, executive director of the Argentine Tourism Hotels Association (AHT), explained to Skift why the industry agreed to it: “It is a public and private commitment to avoid disproportioned increases in the prices and tariffs during the summer season.” This does not affect operations already concluded, reservations or payments in course, he added.
Experts agree that avoiding a price hike in the middle of the busiest season will be beneficial. “We support the private and public commitment to give travelers predictability. For us, it is key on the road to recovery of a sector as beaten down as ours by the pandemic”, added AHT President Roberto Amengual, one of the chamber leaders who signed the agreement.
Higher demand comes mainly from the Previaje, an official program which returns consumers up to 50 percent of domestic tourism expenses in the form of credit, to be reinvested within the sector in Argentina. More than three million people participated by anticipating purchases for 70,000 million Argentine pesos (USD $698 million), seven times more than in 2020.
In this context, the Argentine Tourism Chamber (CAT) confirmed it expects “optimum results” for the summer season, “according to the reservations levels registered.” Private estimates spoke about hotel reservations exceeding 90 percent in January in the main destinations.
With most of the packages, stays and tickets already sold, what could be the real impact of this measure? “I can only assume the benefit is that those who did not (pre-purchase) their stay or tickets, or those that made reservations but did not pay for meals, excursions, et cetera, will not find unaffordable prices once they reach their destination,” said Singerman.
In all, this could lighten the impact of tourism on the summer’s inflation, but whether other destinations follow this model will all depend on how pliable tourism businesses are to going along on giving up control on their prices.