Despite the Economy Minister, Sergio Massa, insisting, after the bad data at the beginning of the year, that an inflation target of 60% for this 2023 is “reachable”, in the market they see too many factors that put pressure on prices and they agree that it will be difficult for the government to arrive in December with inflation below 90%.
“No bad result in a match will take me away from the fight in the league to bring down inflation”Massa noted this weekend in an interview with CNN.
However, consultants and market analysts are not optimistic: they believe that regulated price increases are pending which will put pressure on the entire INDEC official measurement and warn that The two “anchors” that this government has used, the exchange rate and the interest rates, will no longer have the desired effect.
“The difficulty with promising 60% a year inflation is this generates inconsistent behavior, there is no credible pattern and the result could be worse than what would exist in a scenario where the guideline was more realistic,” warned Guido Lorenzo, of the consultancy firm LCG.
The diagnosis seems precise: the January CPI failed to register a large part of the increases expected for this year. Among them appears that of the price of meat, which has risen up to 30% since the second half of January for some cuts. “A significant part of the February price increase will be explained by this concept,” noted a report by consultancy firm GMA Capital.
Within the CPI, the Food and Soft Drinks category has a 25% stake and within this category, meat is the item of the basket that weighs the most, with an incidence of 9%. Although the government came out in the last week with a package of measures to deal with the increase in beef cuts, economists believe that the results of these initiatives will be meager.
“Given the volume of habitual consumption in the country, the consumption pattern of the population and the degree of informality of the main meat outlet (with a smaller share of electronic means of payment), the measures are unlikely to generate a significant impact to mitigate the sharp increase in beef prices that has occurred in recent weeks,” they told Ecolatina.
But this will not be the only obstacle that the Government will have to solve. This month’s regulated price increases will push the index higher: these include 14% for gas and electricity tariffs, 8% for prepaid, 4% for fuel and 10% for the sector of telecommunications.
All this in an electoral context, where monetary issuance will remain high and the possibilities for a tightening of the central bank’s monetary policy appear limited. Added to this is the depression in the demand for money. “The opportunity cost of owning cash is rising in the face of inflation that appears to show no signs of slowing,” they told GMA Capital.
“Taking the last 20 years as a reference, today the demand for money is close to 14% below that average. Any expansionary shock that ends up with more pesos in the economy will have a much faster impact on the price level.“, they stressed.
The exchange rate front can also put even more pressure on prices. Although in an election year the classic wager of governments is to “trample” the official exchange rate, the increase in prices limits this strategy.
The overall picture shows only challenges: the Central’s net reserves have again reached low levels, the “soybean dollar 2” combination and the drought have reduced foreign exchange earnings from agriculture and savers have already begun to dollarize their portfolios.
“The striking thing (although this adjective is nothing more than a formalism since, in reality, it does not attract our attention) is that Massa doubles the ante with an additional dose of the same measures that took him on this short trip until February. The creativity that the government itself prides itself on could delay an unwanted photo, but not prevent it,” said José Echagüe, of Consultatio.
AQ
Source: Clarin
