Argentina seems like a continuous cycle that repeats itself, with nuances. Already in June 1959, the then Minister of Economy Álvaro Alsogaray, leader of liberalism, formulated “we have to get through the winter” in reference to his adjustment plan. Today it is mainly economists who believe this Inflation will not decline significantly until at least after the summer.
“We are in the eye of the storm, in the hardest phase of the correction of relative prices, where those who were lagging must not only increase a lot, but above average regroup,” says Santiago Romero Manoukian, chief economist .da Ecolatina. In his opinion, the government will try to concentrate most of the increases in the first quarter of the year, while “its honeymoon with society” lasts.
The forecast for the December-February quarter is grim. “March and April are highly seasonal monthsbut if everything goes very well Inflation could settle in single digits in April“, says Sebastián Menescaldi, associate director of Eco Go. It’s a race against time as the government tries to avoid another significant jump in the official dollar, which would impact prices.
The exchange rate gap is one of the keys to the beginning of Javier Milei’s mandate. Shortly after he took office, the official exchange rate rose from $365 to $800 (118%), which impacted widespread increases in food and durable goods, among others. The other factors that generated the inflationary flare-up were the disarmament of the previous government’s anti-inflationary programs and the liberation of “depressed” prices, such as those of petrol and prepaid cards.
The hope, say insiders, is that the exchange rate gap (between the official dollar and the financial ones) do not separate more than 40%at least until the end of March and April, when the agrodollars will arrive from the countryside which would allow the reserves to be recomposed and a “stabilization plan” to be applied.
“The million-dollar question is when inflation might drop significantly. If the BCRA maintains the pace of the 2% per month crawling peg of the official exchange rate during the first quarter, inflation could fall to 10-15% per month in early autumn, but Exchange pressures would intensify despite the imminent arrival of foreign currencies from the heavy harvest”, plays Lorenzo Sigaut Gravigna, of the consultancy firm Equilibra.
This economist believes that it is necessary to stop inflation”a stabilization plan based on robust pillars: without twin deficits (fiscal and foreign) and with greater international reserves or a high currency competitiveness cushion using the official dollar as a nominal anchor with the aim of coordinating downwards the adjustment of the main nominal variables of the economy.
In any case, the summer that the Government is trying to experience is still uncertain. For December alone, consultancies predict inflation of between 22 and 32%, which means a serious blow to the wallet. Private statistics indicate that if last month’s CPI – which will be released on January 11 – is around 30%, average income will decrease by 8%. In the case of informal ones, much more.
Inflation, according to projections from the consultancy firm FMyA, could follow this trajectory: very high in the two months of December (29%) and January (27%), and then falling to 11% between March and April, and Only in June it would be at 7%. Last week, former Economy Minister Domingo Cavallo predicted that “inflation could be reduced to 8% by April.”
Cavallo underlined that the government has not yet implemented a stabilization plan and that this will only be possible once the realignment of relative prices is complete, the repressed inflation is over and the fiscal accounts are balanced. “Once the stabilization plan is launched, the monthly inflation rate may immediately drop to 20% per year and end up at 5% per year after the next 24 months,” he predicted.
There is no uniformity in opinions or projections. Elisabeth Bacigalupo, economist at the consultancy firm Abeceb, makes the following sequence for the coming months. Inflation of 31.2% is expected for December. In January between 25 and 26%, February (19%), March (15%) and April between 10 and 12%. “We don’t see a single figure until May“he says. Then, until the end of the year, as long as things go well, inflation would remain between 6 and 7% monthly.
“What there is is a procyclical adjustment. This is consistent with the deepening recession. A strong but short recession, which reverses in the second half, with a rebound that could be interesting, to the extent that it can be linked to a stabilization programme. Reducing the fiscal deficit is only a first step, but an important one,” he says.
The government acknowledged on Wednesday that the previous month’s inflation will be around 30%, such that accumulated inflation in 2023 will be close to 200%. “We understand that the problem of inflation is one of the great battles that we have to fight and that we are fighting, and we know very well how to end inflation, but it is a long process,” said presidential spokesman Manuel Adorni, who described the inheritance received as “a disaster”.
“For January we estimate inflation above 25%, while for December we believe it would be around 28%. That is, we expect monthly inflation similar to December and January, accumulating more than 60% in just two months”, introduces Florencia Iragui, economist at LCG.
The expert adds that “December was a month in which, due to the uncertainty of the change of government, the inertia of previous inflation, the jump in the official exchange rate and the fall of the “Fair Prices” program, the food prices have increased. significantly: over the 4 weeks they recorded an end-to-end change of 36%.”
“This percentage – continues Iragui – leaves a strong brake on the fact that, if for some reason in the next 4 weeks the change in prices were 0%, the average increase would be 12%. If we imagine this in all sectors, we see that it is unlikely that inflation in January will be much lower than that in December”.
Source: Clarin
