The Achilles heel of tying wages and dollars to an inflation of 60% per year

This is for little, but the minister Martín Guzmán He failed in the first round of bidding for bills and bonds of the week all the pesos he was looking for to fill maturities.

Guzmán offers fewer bonds that are CER (cost of living) indexed and expire in one year, and the market he withholds the offer. all not adjusted for inflation and short -term (Treasury bills, parity, extension of rental contracts) offer resistance. The political transition towards 2023 is beginning to play out in the markets.

The estimated inflation of 60% for this year has entered into contracts and threatens to specialize. So much so now in government no one dared bet, even off the record, to lower the cost of living index continuous at the level of 3/3.5% per month in the coming months (against 6.7% in March).

The Alberto Fernández administration estimates that April inflation will not reach 5.5%, but they are considering the short-term conflict and hope that government kirchnerista loosen the onslaught which he unleashed against a Guzmán (with more politics than proposals) who dribbled raids and embraced the umbrella of the International Monetary Fund agreement.

Will it lower inflation to 3/3.5% in the coming months? The answer from a respected economist is yes, but not on a sustainable basis. The indexing of the dollar, of salaries and the growing and ongoing internal battle of the Government puts a “floor” hard to breakhe assured.

One of Miguel Pesce’s main concerns revolves around this point, because he has to decide at what rate to raise the official dollar if April inflation is higher than 5%.

The Central Bank is raising the official dollar by around 4% and running behind inflation just in time for the field adjustment. Will the peso devaluation rate increase as promised to the IMF? Or will too much fuel fuel inflation when prices continue to provide bad news for people’s pockets?

Again, the Government is in the crossroads of having to decide to depreciate faster to encourage the inflow of dollars from the countryside and bet on improving Central reserves but run the risk of hit the food basket.

From Central they announced in a very low voice that the dollar will not grow vis-à-vis inflation as a way to recreate the exchange rate as an anti-inflationary anchor.

The President and the minister are resisting being tied to the framework provided by the agreement with the IMF and to dollars from farm exports which, although their earnings have slowed in the last two weeks, are higher than in 2021.

Report of a consultant balance (Diego Bossio and Martín Rapetti) featured that the drought at the beginning of the year reduced grain production (soybeans, corn, wheat, barley, sunflower, peanuts and sorghum) from 135.9 million tonnes in 2021 to 119 million in 2022.

But the reduction in volume (-17% for soybeans and -24% for corn) will be offset by sharp rise in international prices grain (the impact of Russia’s invasion of Ukraine is decisive), so exports from “major agro-industrial complexes will reach US $ 50.7 billion, 7.5% above 2021.”

The problem, therefore, is not that the dollars did not come but that they don’t come well and very few remain in the reserves of the Central Bank. In fact, and although at a modest amount (US $ 65 million), Central had to sell foreign currency within weeks to supply the market.

A great graph of Echo Go of Marina Dal Poggetto shows a sensitive weak point of the current scheme: while in 2021 the liquidations of exports of grains and oil in April were US $ 2,739 million and the Central Bank bought reserves in the amount of US $ 1,471 million, this year they liquidated US $ 2,554 million, but Central only managed to retain US $ 151 million.

Alberto Fernández was launched to index everything he could inside a scheme by which inflation works to expand consumption and collect more taxes while liquidating public spending on pensions, social plans and salaries. But, at the end of the day, the core remains in an economy with more pesos than dollars it will need to grow on a sustainable basis.