SANTIAGO/RIO DE JANEIRO/BUENOS AIRES (Reuters) - In the shopping malls of Santiago de Chile and the beaches of Brazil, Argentines are snapping up clothes, electronics and caipirinhas, taking advantage of cheaper prices overseas as domestic costs in dollar terms spike on a stronger local peso.

The South American country's currency strengthened over the back half of last year in parallel markets most Argentines use to skirt strict currency controls. The controlled official rate weakened, but far more slowly than triple-digit inflation, pushing up the relative cost of goods.

"Argentina became expensive," said Buenos Aires-based economist Marina Dal Poggetto from consultancy EcoGo, estimating pesos were in real terms three times stronger now than mid-2023 when the country was the cheap destination in the region. At the same time, Brazil's real currency has fallen to a record low.

"This year Argentines are going to be holidaying in Brazil," said Dal Poggetto.

Outside the Maracanã soccer stadium in Rio de Janeiro, Fernanda Montaño, vacationing from Argentina's San Juan province, said it had been cost-effective to holiday abroad due to the favorable exchange rate.

"It was much cheaper for us to vacation here than in Argentina," she said, adding that her biggest regret was not having a larger suitcase to buy more goods to take home.

"We went shopping yesterday and were very surprised by the difference in prices for household appliances. We can't take much with us as we came by plane, but it's so much cheaper!"

The dramatic shift has come since libertarian President Javier Milei took office in late 2023, ushering in tough austerity measures and a "deficit zero" cost-cutting drive that has helped bolster the peso currency - over the last decade usually a laggard that made Argentina cheap.

His changes have stabilized the grain-producing country's public finances and strained economy, which is emerging from a painful recession. Inflation is starting to cool.

NIKE SHOES, BIG MACS AND LANCOME

Argentine prices for some goods have long been distorted by currency controls and high taxes, but now almost everything is more expensive.

A McDonald's Big Mac - often used as a playful index of local prices - sells for up to 7,600 pesos in Argentina ($7.37 at the official exchange rate), versus some $4.49 in Brazil, $5.56 in Mexico or $6.89 in Brooklyn, New York. Prices do vary between outlets even within the same city.

In Chile around Christmas time, Argentines were flocking to stores to buy Levi's jeans and Nike shoes, saying they could save hundreds of dollars.

"I just bought one of my kids a pair of ankle boots here at Nike and I paid around $25. Back home you're talking the same shoes costing $100 to $150," said Argentine Melanie Galarza at a mall in Santiago.

Reuters saw a popular Stanley brand thermos for sale in Santiago for 55,000 Chilean pesos ($56) versus 140,000 Argentine pesos in Buenos Aires ($135). A luxury box of Lancome make-up and face creams cost about $160 in Chile versus an eye-watering $726 in Argentina.

McDonald's Corp, Nike Inc, Lancome owner L'Oreal SA, and U.S.-based Stanley did not immediately respond to requests for comment.

Argentina's official peso weakened around 22% last year, while inflation was estimated at around 118%. That's made restaurants, shops and fuel all feel much more expensive in dollar terms than they were just a couple of years ago.

The trend is a potential headache for the government, which is trying to keep depleted reserves in the country. Argentina's service sector deficit spiked in October, driven by travelers spending on tickets and purchases overseas. The strong peso also ramps up pressure to devalue.

But Milei's government argues that domestic prices will eventually come down with more open competition. Milei strongly favors free markets, even if that comes with a short-term cost. His policies have remained broadly popular with a populace tired of years of economic dysfunction.

The central bank, meanwhile, was calm about the trend, said a bank official who asked not to be named. Overseas spending by Argentines was "within estimates" and much of it made with private funds exchanged via parallel currency markets, meaning it has not hit reserves, the official said.

Paula Cristi, general manager for Argentina and Uruguay at travel firm Despegar, said she was seeing more Argentines lured to overseas hotspots like Brazil as the southern hemisphere summer season was getting underway, driven by the favorable exchange rate.

"It's so expensive here," said Cecilia Cugnaso, getting ready to depart for Brazil from an airport in Buenos Aires. "In Argentina, everything you buy is expensive. Brazil is practically half the price."

($1 = 1,031.5000 Argentine pesos)