A fundamental rule of economic policy indicates that when inflation is low Contracts can be concluded on a long-term basis. Otherwiseand very markedly, It’s happening these days in Argentina.
The breadth of the Decree of Necessity and Urgency passed by the President pushes entrepreneurs, lawyers, accountants, traders, economists and the population in general to try to interpret the extent of the change proposed by the Javier Milei in 83 pages containing 366 articles.
In addition to the detailed analysis of this DNU which implements very important changes for people and companies, There are other more sensitive changes that are being advanced hour by hour to the final destination that this presidential decision will reach regarding its parliamentary approval.
Price liberalization is practically total (the dollar remains under control and electricity, gas and transport tariff increases will begin in February) e The country fully entered a new inflationary regime, already advanced by the President foreseeing increases of cost of living from 20% to 40% per month for the first quarter of 2024.
Milei places the emphasis on underlining that the inheritance received is more than worse, to the point of setting the limit that, without doing anything, Inflation would reach 15,000% per year. Faced with this, the President can consider any reduction in inflation as an achievement.
A summary of what has been recorded in the race to advance sales prices is found by consultants, such as Eco Go by Marina Dal Poggetto, who forecast for this month an increase in the cost of living of around 28%, with food leading the charge.
In what may seem like ancient history and already at the end of 2023, November inflation was at 12.8% (on an annual basis it reached 160.9%) and it had started with 6% in Januarywhen the then Minister of Economy Sergio Massa predicted that the cost of living increases could “start from 3” in April. That fantasy quickly faded.
The combination of devaluation, overflowing issue due to candidate Massa’s “Platita” planplus the Devaluation of 55%. arranged by Minister Luis Caputo shortly after his inauguration, and the elimination of controls and the liberalization of prices -from a wide range of products and services- generated to significant decline in household purchasing power. There are prices that generate amazement among consumers these days.
Faced with the inflationary shock that it inherited and encouraged, the Government is currently proposing two paths of moderation with a strategy that could be defined as “cloak and dagger”: declining sales and recession They seem like a dam to slow down the persistent increase in the cost of living.
The two paths chosen by the President are the well-known fiscal adjustment of the order of 5.2% of GDP and set the price of the dollar at $800 with a monthly adjustment of 2% for an indefinite period.
The fixed exchange rate scheme, because it is the dollar the “unit of account that Argentines have in their heads” (economist Ricardo Arriazu has insisted for many years that it is impossible to think of stopping inflation without a stable dollar) ended up failing in the heat of the expansion of the fiscal deficit and the credit issuance that governments obtained for finance it.
In the current case, there are many doubts as to whether those 800 dollars, which after exporters’ withholdings remain at 720 dollars, updated at 2% per month, will not quickly fall behind in the face of inflation forecast at 22% for January and 20% for February.
Faced with this concern, the officials’ response is as follows: “we’re seeing”, But they say they are clear that they have no intention of lagging the dollar, even if the current belief is to keep it pegged in an effort to moderate price runaways before the rate hikes arrive.
Other times, in equivalent inflationary situations of changes in relative prices, the path chosen could be the “heterodox” one and, in general, by abusing the instrument, aim for an agreement on prices and wages aimed at mitigating the fall in the purchasing power of employees and pensioners.
In this experience that has just begun, the contraction in sales due to the drop in revenues appears to be a primary and difficult way to try to mitigate inflation after the summer.
Meanwhile, indexing everything you can and for short periods has become a summer hit.
Source: Clarin
