The government announced last week that bus and train fares will be updated monthly based on the inflation index. Therefore, this entry has been added to the list of contracts that increase according to the INDEC Consumer Price Index (CPI), which has been expanding in recent months.
They are on that list UVA fixed terms, the investment option that pays interest a few tenths above inflation and which has been decisive in keeping the pesos in the banks. They are also included in this lot UVA, pledge and mortgage loans.
On the other hand, Treasury commitments are also linked to inflation. This counts for the CER Bonds which are updated according to the CPI, but also for the payment of pension and social plans and in some cases for salary updates.
The same metric is used for rent and construction costs, while prepaid combines a price and wage index.
He explained to Camilo Tiscornia, director of C&T Asesores Económicos clarion what are the main economic risks of tying contracts to the CPI. “Indexing is a central pointmore and more prices are automatically linked to inflation and the main problem is that an unstoppable inflationary inertia is generated”.
For his part, Sebastián M Domínguez, partner of SDC Asesores Tributarios, commented that “It is indexed to maintain the purchasing power of the currency. The problem arises when the entire economy is indexed, thus generating an inflationary spiral that is very difficult to stop”.
Domínguez remarked that “all the productive elements of the economy are linked to inflation, either because they consume electricity, gas, water or fuel and these costs directly affect the formation of prices and generate the increase”.
The specialist explained that “in the items where this expenditure is lower, the incidence comes from the cost of raw materials, of imports, which are adjusted in some way: by the CPI, by the value of the dollar, etc. And in the end the whole economy ends up being indexed.
During 2022, more sectors started to adjust for inflation, for what tiscornia Generates less space between raises. “To name a few, the salaries of the domestic workers They adjusted a couple times a year and today we adjust pretty much every month. With condominium administrators Something similar happens with bonuses. private schools It’s another item that was suddenly increasing very strongly in April or March, with maybe a few more increases throughout the year. Last year there were several increases in the month, ”she pointed out.
“The prepaid they used to adjust twice a year and now they index automatically and every two months it adjusts based on the wage index,” he explained. Tiscornia. And he added: “this denotes an increasingly accelerated process and makes it very difficult to achieve disinflation due to the inertia that inflation gives it”.
The effects of indexing
Dominguez recalled that “in In Argentina we had two hyperinflations and if everything is indexed there are risks. There has to be an economic plan that brings about change. If the fiscal deficit is not eliminated and debt is not obtained to finance that deficit, the monetary question continues. So, the inflationary problem is hardly solved then every industry will want to continue with indexing”,
“There was a lot of formal indexation in the 1980s and that complicated the reduction of inflation and actually ended up promoting it. If a plan to lower inflation is not implemented, indexing it will feed it and place it on an ever higher step and therefore stopping it becomes impossible,” he stressed. tiscornia.
He said that too “In some cases, to stop this escalation, measures have had to be taken, such as the removal of which is a way to cut with that indexing, contracts are changed directly. The loss can repeat itself in this context where there is so much indexation, and lower inflation which complicates it because it implies the breaking of contracts”.
“The 2002 weighting had to address this because the whole economy was tied to the dollar. There was a big jump in the exchange rate and the government didn’t want to validate it, so they directly broke all the contracts to be able to cut that indexation against the dollar. We are still paying for the breaking of contracts issues at the time,” she concluded. Tiscornia.
Fernando J. Genazzini
Source: Clarin
