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 near 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, 57, 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, 30 km (18 miles) from capital Asuncion, estimated to Reuters that sales had plunged between 60-80% 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% per month on a controlled ‘crawling-peg’, and monthly inflation – while slowing – has been some 10-20% each month. That’s meant prices in dollar terms have soared.

Something that cost 1,000 pesos on Jan. 1 would have been worth $1.24 at the official exchange rate that day. With 65% accumulated inflation though April, that same product would have cost 1,650 pesos, worth $1.88, on April 30, an over 50% rise.

“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 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.