The evidence is overwhelming: clothes are expensive in Argentina. This trend has developed over the last two decades, during which the country has gone against the world. While clothing inflation here has outpaced average inflation, the opposite has happened in the world. To explain the high local prices, the public debate oscillates between critics of the national industry who argue that they are due to high protectionism; and those who attribute them to issues that have nothing to do with the sector, such as the local macroeconomy. Understanding the factors that explain why clothing is expensive is a necessary step towards improving public policy towards the sector.
Why analyse clothing prices
From mid-2020 to the end of 2022, clothing and footwear were the chapters of the consumer price index that increased the most. This sparked a controversy over the causes of the increases.
The public debate oscillated between the two positions. On the one hand, critics of the national industry blame protectionism and argue that lowering prices is only necessary to open up the economy and encourage imports. On the other hand, the other view argues that the high prices of clothing are due to a multiplicity of factors, all of which have nothing to do with local production.
The explanation for the phenomenon is more complex. During the last two decades, high external trade protection was a central factor in justifying the differential evolution of clothing prices in Argentina with the rest of the world. But it is not the only one. Deteriorating macroeconomic conditions contributed to higher relative prices for all goods, including clothing. It also affected the cost of financing, which in turn constrained investment and productivity growth.
Recognising the complexity of the problem of clothing prices is central to improving the state of the current debate and the design of public policies. It is key to providing an answer to the question that triggered this Fundar series: what to do with the Argentine textile industry?
What does it mean that clothes are expensive in Argentina?
Absolute prices, relative prices
Clothing is expensive in the country both in absolute terms -i.e. in dollars- and in relative terms -about the rest of the goods and services in the economy-. In absolute terms, a basket of clothes in Argentina is 35% more expensive at the official dollar compared to the average of the same basket in other countries in the region -and 16% at the MEP dollar-. At the same time, the prices of clothing and footwear in Argentina are among the highest in the world compared to the rest of the goods and services in the economy.
How expensive is clothing in Argentina in dollars (absolute prices)?
The analyses that usually circulate refer to the price of a few products of specific brands, from which conclusions are drawn about the whole market. However, Argentinian families buy around 77 different types of garments (which make up a basket of clothing), of a wide variety of brands and qualities. To get a more detailed picture, we compiled information on 389,621 retail publications of 33 different types of garments for Argentina and six other countries in the region (Brazil, Chile, Colombia, Mexico, Peru and Uruguay) on Mercado Libre, the leading digital commerce platform.
Clothes are more expensive in dollar terms than in other countries in the region
In Argentina, clothing is 35% more expensive at the official dollar than in the rest of the countries analysed, a difference that is attenuated when considering the exchange rate at the MEP dollar. However, if we look more closely, we find important nuances.
Not all clothing is equally expensive
Argentina is relatively less expensive and more competitive in knitwear (such as casual wear, sportswear and underwear) and children’s and babies’ clothing. It is more expensive in flat woven products (such as denim and gabardine, which are often used in jeans, trousers, tailoring and shirting) and in adult clothing. Clothing prices are particularly higher for branded and high-end garments, and not so expensive for undifferentiated and low-end clothing. The flip side of this phenomenon is that Argentina’s clothing price dispersion (i.e. the distance between the cheapest and most expensive garments) is, along with Uruguay’s, the highest in the region.
How expensive is clothing relative to other goods and services?
Compared to US prices, clothing is the most expensive item in the Argentine economy
Prices in dollars in the Argentine economy are generally considerably lower than in the United States. But this is much less so in the case of clothing. In the first quarter of 2024, clothing prices were, at the official dollar, 16% lower than in the United States. In contrast, food was 20% cheaper, health 69%, housing 83% and education 90%. This reflects that, in relative terms, clothing in Argentina is expensive. That is to say, in Argentina, an item of clothing “buys” many more goods and services than in the United States. The same holds if we compare it with other developed countries or even in Latin America.
In the last two decades, clothing inflation in the world has been much lower than the average of the economy, while in Argentina the opposite has occurred
Since 2001, and taking 48 countries with available information, Argentina was the country with the highest increase in relative clothing prices (up 32%). In the world, the opposite happened: clothing became 32% cheaper.
Clothing price trajectory starts to change after convertibility
Between 1994 and 2001, relative prices of clothing and footwear in Argentina followed a similar trend to other countries and regions.
From 2002 onwards – the first year of post-convertibility – local prices started to increase and diverge from other trajectories. Since at that time, relative clothing prices were quite low in the country, for quite some time it was not noticed that clothing was relatively expensive in Argentina.
It is only since 2011 that Argentina started to have higher relative clothing prices than the United States, Europe and Latin America. Since then, (and except the period 2016-2019 and 2023-2024) this trend has been consolidated. This explains why today in Argentina an article of clothing “buys” more goods and services than in much of the world.
The rise in the relative price of clothing is part of a more general phenomenon of rising prices for goods and falling prices for services
Between the end of 2001 and April 2024, the relative price of goods rose 43% in Argentina. By contrast, services became 31% cheaper. Nothing similar was observed in any of the other countries surveyed. Rather, goods became moderately cheaper (5%).
Thus, a significant part of the rise in the relative prices of clothing took place in a general context of rising prices of goods relative to services in our economy. However, not everything can be attributed to this because, in the world, clothing has become much cheaper than goods. In fact, in the period analysed, clothing in Argentina fell by only 7% compared to goods, while in other countries it fell by 28%.
Wholesale and retail prices did not evolve in the same way
If we look at what happened to relative prices between the different links of the textile-apparel value chain, we notice that in times of trade openness -such as during the periods 1993-2001 or 2016-2019-, retail prices of clothing fell faster than wholesale prices. This suggests that import barriers not only serve to protect factory production but also generate rents in the importer-trade segment, as a result of reduced competition within that link.
How do we explain the differential trajectory of clothing prices in Argentina?
Eight factors to consider
Primary causes
- Increasing import barriers, particularly in clothing, through tariff increases and the growing use of para-tariff measures, in a world where the trend was the opposite.
- Macroeconomic uncertainty and volatility, increasing over the last decade and a half, affected goods more than services.
- The use of price regulation as an anti-inflationary anchor in items such as public services affected the dynamics of relative prices so that non-regulated prices -such as clothing- tended to rise above the average.
- The real exchange rate and the exchange rate gap – which has been growing for much of the last 13 years – affected goods prices more than services prices.
Secondary causes
- Increasing tax pressure on production made goods more expensive, particularly those in longer chains and with high domestic integration, such as clothing.
- The dynamics of domestic consumption and purchasing power had an impact at certain times, both based on changes in demand and labour costs.
- Restricted access to credit acted, in practice, as a cost driver of financing, raising local costs and limiting productivity gains.
- Sectoral productivity was stagnant and highly pro-cyclical, which conditioned the generation of economies of scale and the reduction of unit costs.
We denote the former as “primary” and the latter as “secondary”, because the latter only operates when one of the primaries is active. In particular, high import barriers have been a condition of possibility for secondary factors to operate in practice because they have allowed local producers to pass on rising costs or demand pressures to prices, without being crowded out by foreign competition.
How these factors influence clothing prices
At no point in the last 25 years did these eight factors operate simultaneously. Rather, throughout the different stages, factors that made relative prices more expensive coexisted with others that depressed them.
In years of rising relative prices – such as 2002-2015 and 2020-2023 – there were generally higher import barriers, a high real exchange rate – or low but with a high exchange rate gap -, high macroeconomic uncertainty, high lagged prices of regulated goods and services, increasing tax pressure, and rising domestic consumption and wages.
