The Government has sent two important signals about the scheme prices and wages before the election: segmented prepaid increases and implemented a 40% increase in bus and train fares in AMBA. The most striking thing in the latter case is that since March it will be updated for past inflationa mechanism that paradoxically could complicate plans to slow prices.
Is that, although Sergio Massa has multiplied price deals to take, wait, inflation from 4.9% in November to 3% in April, the new measures appear to reinforce a greater “indexing” of the economy. This means that there are more and more contracts updated by indices trying to keep up with prices. A phenomenon that already reaches rents, rates, salaries, advances, prepaid, pensions, public works and debts in pesos.
“Indexing is typical of a high inflation regime. At the micro level it is a solution because it allows not to deteriorate the cash flow of companies and businesses or wages. The problem is that the cost is passed on to those without indexing powerand it makes it even more difficult to slow inflation because past price increases are reflected faster and across the board to today,” he said. Claudio CapraruloAnalysis director.
One of the elements in which the effects of inflationary dynamics are seen are i parity. Since 2016 the agreements continue to be annual and have incorporated two or three revisions in recent years, but new ingredients were added last year: the multiplication of monthly adjustments and a diverse spectrum of gains, ranging from 60% (Trade) to levels above 100% (UOM, glass and oil).
“What has changed, and for me there is something new here, is that in many agreements the increases are established practically for each monthFor example, UOCRA had wage increases in ten of the twelve months of 2022, Commerce and UOM in nine, UOCRA and UOM have already planned increases for January, February and March. The other news is wage dispersion”, he pointed louis fieldsdirector of the Social Law Observatory of the autonomous CTA.
Despite the reopening of negotiations, formal wages have lost purchasing power over the past 12 months, according to November data from INDEC. For the IMF, however, the inertia is reflected in the formal and informal mechanisms of “salary indexation” as the transfer to prices of the rising dollar are the main “drivers” or engines of inflation, with an “immediate” impact, within a single month.
Another example is the pension adjustment formula. The latest law on mobility linked assets to collections and salaries, two indices which, according to economists, are affected by past inflation. So if the official strategy to lower inflation has been successful, that would make it difficult to reduce the fiscal deficit, as some indexed expenses would be less liquefied, a policy that has made it possible to achieve the fiscal target in 2022.
“The strong inertia driving the inflationary process is favored by contracts which tend to be concluded not only by shortening their duration but also with adjustments largely based on past inflation. inflation only consolidates this dynamic,” he explained Santiago Manoukianchief economist of Ecolatina.
In this context, it is not clear how will Sergio Massa lower inflation by more than 95% to 60% per year. The Rent Act extended leases from two to three years and set annual adjustments for inflation and salaries (RIPTE). But the same system that started with increases of 41% annually will show increases of 90% in February. And informally Realtors and landlords anticipate semi-annual and even quarterly adjustments.
Somehow they continue to create Gadget to circumvent the indexing ban in effect since April 1, 1991. Domingo Cavallo included it in the Emergency Law (25.561), when convertibility was established. The goal was to reduce core inflation by preventing adjustment for prices that raise debts, taxes, prices or tariffs on goods, works or services, and even the achievement of collective agreements.
But after the 2001 crisis and the fall of convertibility, derogations were authorised, for example with the CER debt. And there have been court rulings as well. These waivers have allowed banks to offer UVA loans and deposits and governments to expand the issuance of dollar- and inflation-adjusted bonds.. According to PPI, indexed debt today represents the 84.2% of the stock in pesos, when it did not exceed 54.9% in December 2019.
for the economist Jorge Neiro“indexing is growing because it is a response to the acceleration of inflation, with a level of 20% per year indexing was almost absent and with 50% a little more, from semi-annual indexing we move towards quarterly adjustments, monthly, that is, because when Cavallo put convertibility, indexation was prohibited, because even if inflation goes down, any shock accelerates it again.”
In this sense, Delphos warns that “the economy is increasingly indexed”. Which, according to the consultant, “the persistence of any future inflationary shocks increaseswhich complicates any attempt at disinflation in the short term”. “In this context, we see that the inflation floor for 2023 is above 100% per annum, with a foreseeable acceleration from next February-March”, he concluded.
Source: Clarin
