The month of October seems to have marked an acceleration of inflation compared to September and once again the attention falls on the management of the economic cabinet in its battle against the rise in prices. More than a year after the declaration of war on inflation, the results are disappointing: an acceleration in monthly inflation and a rate that in the year It will be about three digits.
The answer seems to be a new price check. Old tools that didn’t work in the past e there is no reason to suspect that this time around it will be different. The current inflationary process in Argentina already has an inertial component that places it at a level that exceeds what its fundamentals imply. The country does not have a runaway fiscal deficit like in previous decades, for example. The main dissonant element, the factor that messes up nominality, in fact, is precisely in the public sector.
The current problem has a very strong component of lack of coordination. It is the same government that presents the bills with an inflation for 2023 of 60% when there are no factors that indicate such disinflation. Conversely, the update of rates, the necessary rearrangement of the exchange rate, the delay in regulated prices and the need to restore wages, among others, inflation of 2023 will rise above that of this year.
the policy of orthodox courtfiscal and monetary adjustment, It is a necessary but not a sufficient condition.. Price freezing policies complement these measures. In fact, they can also have a purpose, to set benchmark prices. However, this works most effectively when prices are moving at a rate of between 20% and 40% per year. That is, when prices are updated every six months or even quarterly. What price can be frozen for three months without being perceived as cheap or expensive at any time? The clearest example is the exchange rate, in the mid-term election period it has moved well below inflation and it has brought more problems than solutions.
Currently, according to our surveys, prices are updated at a rate of at least once a month. In this context, it is impossible to set reference prices. Also, to freeze some prices at this juncture it will only lead to more shortcomings with a private sector separating from pesos to save on assets.
The economic cabinet seems to continue looking in the wrong place. Or blame it on international prices, or upwards profit margins limited competitive markets. As for the first, it should be noted that international food prices, according to the FAO, have been falling for five months, there is no reason to think that this phenomenon is making us import inflation, indeed it shows that the increase in prices is taking place. has turned into a permanent shock in our country.
On the second, new measures now to control profit margins. There is one point on this, inflation, any price movement, initially has distributional consequences. But focus on the consequences is to put the cart before the horse.
The real reason why prices are constantly misaligned is because there is no pattern where is nominality going in Argentina. This is where we go back to the beginning, it is the economic cabinet itself that holds the key to ordering macroeconomics.
First of all, give a credible inflation model, which acts as a coordinating element. Secondly, because with the weight it has in the economy, is the leading price producer in the country. Third, because prices are set at a high level for tradable goods in the face of exchange rate uncertainty. That is why accountability should be focused on good communication, a coherent strategy and an honest talk about the direction to be achieved.
Clarifying that inflation may need to rise rather than fall is a first step, making clear in the internal discourse that an adjustment or reorganization of the public accounts is in the process of being studied is the second. Finally, it will take a lot of discipline to rebuild the credibility lost over the past 15 years. Unfortunately, credibility is built first and then it is spent, there is no way to borrow it.
Source: Clarin
