The program carried out by Economy Minister Sergio Massa, in tandem with the International Monetary Fund, is inflationary because it implies an immediate increase in dollar prices and tariffs. In part, this is what underlies the inflationary acceleration of recent months.
The dollar is the most important price in the economy. It is not only a measure of savings for people, but also establishes the cost of imports and inputs needed to produce. And since the IMF has insisted that if the country doesn’t rebuild reserves as agreed, and is hit by a drought, what Argentina should do is raise the exchange rate, not step on it to make it easier for the people and businesses buy foreign currency.
The agency will never say the government should devalue the peso, but it will – and does – cause the price of the dollar to climb at the rate of the rest of the prices (crawling peg). This has been accentuated so far this year. In April, the dollar rose by a daily average of 6.3% per month. At the beginning of the year it was 5%. Bottom line: more inflation.
Another mechanism that propagates inflation is the reorganization of regulated prices, basically tariffs. The Government is adapting them even though they are still behind schedule and unable to finance 100% of the cost of production, both for electricity and gas. According to INDEC data, it can be seen that in the first three months the prices of public services rose almost to the inflation rate (20.6% vs. 21.8%) while in the last twelve months the rates had accumulated a delay (93. 1% against 104.3%). Massa has promised to further adjust the rates in the coming months.
However, rampant and unsettling inflation such as the present cannot be explained by dollar management, tariffs or the IMF program alone. There are other elements that explain this present.
What about monetary aggregates? It does not seem
The monetary base in terms of GDP has not increased significantly in the last twelve months – it has remained at around 13% of GDP according to the consultancy Eco Go -, and central bank issuance so far this year is lower than that of 2022 ($232,000 million versus $1,550,000 million last year as of April 5) and with higher inflation. The monetary issuance today is lower than in 2022 and despite the $2,251,000 million of interest in Leliq and other securities that the BCRA has placed on the market and the purchase of government bonds that it has made.
But apart from major devaluation and rate hikes, what explains this new round of accelerating inflation if monetary aggregates have not risen?
“Expectations that it is more difficult to obtain dollars have grown and this means that people and companies want to have fewer pesos, everyone is looking for dollars,” explains Sebastián Menescaldi, economist at Eco Go. “It’s a question of expectations and any price is validated”.
Finally, another mechanism that the government uses and propagates inflation is parity. Unions such as bank and rural workers got up to a 32% raise for five months. It is the price of lubricating the social strife of recession and inflation. Even when wage increases cause an inflationary spiral.
Dollar, tariffs, more inventories and parity are measures that the government takes and more and more inflation. Sergio Massa responds to this with price controls, agreements and fines for companies. Economic science against macumba.
Source: Clarin
