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“The war on inflation celebrates a year of runaway prices

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Almost a year ago, at an event in Tortuguitas, President Alberto Fernández spoke about the start of the war in Ukraine and expressed his concern about the impact on the cost of food. “I promise that on Friday – he underlined at the time – the war against inflation will begin in Argentina”. Since then the interannual cost of living has gone from 52.3% to 102%, that is almost double, despite the expansion and multiplication of controls in factories and gondolas.

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The battle to contain prices in these 12 months, according to the metaphor of the presidential war, is doomed to defeat. It’s a period through by 3 Ministers of Economy (Martín Guzmán, Silvina Batakis and Sergio Massa) e 4 Secretaries of Commerce (Roberto Feletti, Guillermo Hang, Martín Pollera and Matías Tombolini). And also by the head of the Central Bank, an institution whose primary role is to defend the value of the peso.

All the statistics point to the acceleration of inflation despite the tightening of regulated pricing programmes. For example, Feletti took office on October 12, 2021 and resigned on May 23, 2022, i.e. 7 months and 11 days. Average monthly inflation for the period, according to the consultancy firm LCG, was 4.4%. But since then “the beginning of the war on inflation”, the percentage rises to 5.8%.

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In his place was Hang, who lasted just 44 days in office, with monthly inflation of 5.2%. In the short-lived management of Pollera (27 days) the cost of living rose to 7.4%, even if it seems unfair to place all the blame on him. Tombolini replaced him with a greater share of power, since by Massa’s instruction he too came to control Foreign Trade, the office in charge of authorizing or blocking imports.

This Sunday, Tombolini is about to match Feletti’s mark. For 7 months and 10 days he was at the head of the Secretariat of Commerce, an office with an enormous symbolic charge for the hardest Kirchnerism: in that period the average monthly inflation was 5.9%, well above his efforts to establish reference prices with Right Prices, covering more than 50,000 products in agreements with companies from 17 different sectors. This provides for a cap of 3.2% per month on increases against the delivery of dollars from reserves (the cheapest on the market) to pay for imports.

Although Tombolini repeats that inflation is fought by lowering the fiscal deficit and accumulating reserves, It has ramped up operations in supermarkets and consumer goods manufacturers in recent weeks (with fines and closures) to verify alleged violations. “Inflation in 2022 was the highest in 32 years (94.8% year-on-year) and the beginning of 2023 shows signs of acceleration,” they tell Ecolatina.

Not only that. The same report by the consultancy firm highlights that since the entry into force of the expanded version of Prizzi Giusti (November last year), the gap in the prices of basic products between the modern channel (hypermarkets and supermarkets) and local shops (self-service , warehouses) deepened, which hit low-income sectors particularly hard.“Only 15% of the poorest buy from big chains”they pointed out.

“When you look at the goals of the Fair Prices program (lower the comment rate and cut with inflationary inertia), clearly the controls have not been effective”, interprets GuidoLorenzo, director of the consultancy firm LCG. Jorge Vasconcelos, Ieral economist, led today by Carlos Melconian, calmed down: “In an economy so closed by shares, You can’t ask the Secretary of Commerce for miracles. The bulk of inflation is a fiscal and monetary issue,” she said.

Vasconcelos recalls that in 2021 (with the economy practically normalized after the pandemic), direct loans from the Central to the Treasury represented 3.7 of GDP. “Although this may later be sterilized with ties, this is pure emission (excess pesos), which inevitably have repercussions on inflationary expectations”, explained the economist.

Ecolatina chief economist Santiago Romero Manoukian broadly agrees. He says price controls in isolation from a stabilization program are insufficient to fight inflation. “This is a macroeconomic issue and the Secretary of Commerce attacks its consequences and not the causes that give it momentum“, he indicated. More: “Trade can only contribute to the stabilization task, but the main responsibility lies with the Central Bank,” he stressed.

Many specialists are struck by the fact that the head of the monetary body, Miguel Pesce, hardly mentions the subject when INDEC publishes official inflation data each month. “It is very striking that he does not make statements, beyond interest rates”, comments Lorenzo and adds that by recharging the efforts in the “war against inflation” on the Ministry of Commerce “has a clear ideological nuance”.

The fight to halt rising prices requires an increasingly scarce fuel: fresh dollars. “Inflation is a macroeconomic problem and its reduction cannot be based on price agreements: adequate exchange rate, monetary, fiscal and income policies are needed”, explains Claudio Caprarulo, of the consultancy firm Analytica, adding that “Going to war without dollars in the central bank is like carrying half the guns without bullets”.

The economist of the consulting firm Equilibra Lorena Giorgio shares a similar opinion. “With enough dollars, I think the Fair Prices program would have worked,” she says, alluding to Tombolini’s reformatted program shortly after he took office.

“At the end of the year – underlines Giorgio – Massa seemed to have stabilized the economy when he began to release foreign currency from soy dollars. The idea was to coordinate price expectations, lower parity slightly and align index contracts. But meat has skyrocketed and drought has worsened the situation”.

The lack of rain means that $20,000 million will enter this year, at least, an inevitable fact for the Central Bank. The decline in reserves in June 2022, comments Romero Manoukian, was one of the two major shocks that impacted the inflationary escalation. It happened weeks before Guzmán’s resignation. The other flash occurred in February last year, with the start of the Russian invasion of Ukraine, which had repercussions on food and energy prices.

This Tuesday (one day before the anniversary of the “war against inflation”), INDEC will release inflation data for February. January has risen to 6% and private consultants estimate that percentage as a floor, with torment of the population.

Price distortion deepens

The expansion and reformulation of the main anti-inflation program (Fair Prices) deepened the distortions in the mass consumer market. It is an extremely sensitive segmentas it contains essential consumer products, including food, beverages, toiletries and cleaning products.

Almost all statistics show that the price gap between the so-called modern channel (hypermarkets and supermarket chains) and the so-called traditional channel (supermarkets, warehouses and neighborhood fairs) has widened in the last year, despite the continued efforts of the government to avoid it.

“Since the entry into force of Fair Prices, the difference between the increases of some products within the agreement is not less: for example, in the traditional canal the water rose 10% above the modern canal; noodles, 9%; milk, 7%; and yogurt, 6%,” indicates a report from the consulting firm Ecolatina.

This differential in the increases of Fair Price products “implies a more serious impact on the most vulnerable sectors”, says the same consultant, since “only the 15% of the poorest buy in the big chains”.

Price regulation also has a very clear impact on different marketing channels, although promotions and the variety of payment methods also have an influence. In January, according to Ecolatina, “Sales in supermarkets increased by 7.8% year-on-year and decreased by 9.1% in self-service stores”.

Thanks to better prices, an invaluable attraction in the midst of rising inflation, the big chains have managed to increase its market share from 34% to 38.5% in the past 12 months. “This is the highest level in 10 years,” said a senior supermarket source. However, the same source clarified that “in the 1990s, the sector concentrated 50% of the mass consumption sector”.

Fair Prices is a new reformulation of the program with which it seeks to contain inflation. As soon as he took office, in August last year, the current secretary of commerce, Matías Tombolini, agreed with producers and chains to freeze prices for 120 days for a basket of 1,900 basic products. And a guideline of 4% monthly increases has been established for the entire remaining universe.

Later, he relaunched the program by adding 17 different items (including textile yarns, slippers, mobile phones, meat, fruit and vegetables, industrial inputs and even motorcycles), which covers a universe of 50,000 products, which cannot grow more than 3.2% per month. This has been agreed with around 600 companies. Despite everything, the inflationary escalation has not stopped.

In November the cost of living fell to 4.9% and in December it rose a little: 5.1%. The January figures (6%) shocked the government and next Tuesday, on the eve of the first anniversary of the “war to inflation INDEC will announce the index for February, which would be around 6%, minimum.

“In August last year, the arrival of Massa and Tombolini brought strong signals of fiscal adjustment and interest rate increases. The result was progressive, it was possible to reach 6% again between September and October, and 5% between November and December”, explains Claudio Caprarulo, of Analytica. But he adds that “this year inflation has risen again to settle again around 6%”.

He then alluded to the lack of effectiveness of the price controls that the government is applying. However, “what seems to have given results to the management of Tombolini is in clothing and footwear. There are seasonality problems in the lower inflation of the sector but in any case the drop is more marked than in other years”, highlighted the economist.

Another fundamental aspect is the level of product offer: supermarkets warn that producers only deliver 45% of the products requested. It’s not a minor thing. Fair Prices represents between 16 and 25% of chain turnoveraccording to branch area.

Source: Clarin

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