The latest inflation data has prompted advisors to recalculate their projections upwards for the full year. Now, estimates for annual inflation already reach 120%.
A report by Fundación Capital specifies that the baseline scenario used includes 120% inflation with a 2.7% drop in GDP. And they define 2023 as “a year without growth engines”.
This projection indicates that “the contraction in aggregate demand would reach 4.3% year-on-year, discounting the impact of imports”.
In detail, they argue that the decline in agricultural activity due to drought will subtract at least two points from GDP in the year. Also, with import restrictions tightening and domestic demand falling, industry will have a 0.7% drop, which in turn will subtract 0.15 points from output.
But at the same time, the Capital Foundation manages two more complicated scenarios, both with a 30% probability of happening. In the “Plan to withstand inflation – reloaded”, the exchange rate gap -now below 100%- “is narrowing towards the middle of the year, in the context of cumbersome peso maturities and with risky assistance from the BCRA to the Treasury” . In this alternative, inflation would exceed 140% and the official exchange rate would reach 390 dollars, with a drop in GDP of more than 3.5%.
Finally, “in the third scenario the dynamics would be more critical, the product of a discrete leap in the official exchange rate which cannot be avoided given the weakness of cash in dollars and where an iterative process of devaluation-inflation would take place, with a greater economic downturn and even greater nominality“.
More inflation for the end of the year
Even JP Morgan, the largest bank in the world, estimates inflation at 115% for this election year.
“Our baseline scenario assumes monthly headline inflation of a monthly average of 6.2% between March and June, i.e.and would accelerate to 7.0% in the second half”, specified the bank’s analysts and specified that “the path is consistent with inflation of 115% in December 2023”.
Moreover, the study underlines this economic activity will decrease by 1.7% in the year and up to 2% in 2024, “making the country suffer again for two consecutive years of recession and up to 13 years of stagflation”.
The Latin Focus forecast indicates an average inflation of 98.7% for this year. But many of the more recognized consultancies are already seeing it closer to 120%. That list includes EcoGo (118.6%), Invecq Consulting (118%), EMFI (117.5%), Banco de Galicia (115.4%) and Barclays Capital (115%).
For Eduardo Frachhia, of the IAE Business School, inflation continues to rise and “may rise to 120% during 2023 even if the scenario of repeating 100% is not impossible“.
Even advisers who still keep their annual projection closer to 100% than 120% are already warning that the chances of the consumer price index falling more than a notch in the rest of this year are virtually impossible.
“From here on out, it will be hard to find numbers below 6%” said Federico Moll, director of the consulting firm Ecolatina Analytics. The economist gave a dismal forecast for the CPI, which is already discounted at 7% in March, and will not improve in the coming months.
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Source: Clarin
