Yes for the president Javier Milei Inflation of 30% in December would have been a “number”, since he expected more than 40%, the official figure of 25.5% will have increased his optimism.
The 211.4% increase in the cost of living in 2023 is dramatic because it places Argentina at the top of the world inflation ranking and because of the impact on poverty that this implies for the majority of the population.
The official dollar’s 118% rise on Dec. 12 fueled another price surge a new liberalization framework where companies and businesses sought to maximize their margins. This process has gained unprecedented acceleration in two decades.
Food and Beverages with 29.7%; Transport 31.7%; Health 32.7%; Home equipment and maintenance (30.7%) were the items that led to the increase in the cost of living index in December. The race has been fierce and now comes another phase.
For economists the synthesis of reality is contained in the formula of PxQ where P are the prices and Q the quantities. When one goes up, the others go down and this could explain the Ministry of Economy’s plans for the next few weeks.
Cement companies say the jump in prices has caused them to Sales drop of 15%. and oil companies calculate a 10% drop after the gasoline leak.
The result of the adjustment is textbook: prices rise and quantities fall on the basis of a clear definition from the President: “I did what I had to do. I sent andThe shock program, very orthodox with a fiscal adjustment and with a consolidation of the Central Bank”.
The orthodox adjustment involved setting the exchange rate at 800 dollars (higher than the 650 dollars deemed necessary) and with the addition that exporters could settle 80% to the official dollar and 20% to the cash dollar with one transaction which implied an additional advantage.
And this, what’s more, without any further withholdings having been approved yet, which means that the transfer to the prices of the new exchange rate has been strengthened.
The flip side of the inflation rate of 25.5% in December and just over 20% forecast by consultancies for this January is the sharp decline in purchasing power pensions and salaries. The fixed income adjustment has full impact.
According to Eco Go forecasts, according to the survey of food prices in the first week of January, the monthly increase would be 20.6%.
In February the increases in gas, electricity and transport tariffs and he will feel another shot in his pocket.
A simulation, again by Eco Go, and assuming that the gas increase of up to 180% for non-vulnerable sectors is also transferred to the rest of public services, marks the significant impact on the middle class.
The incidence of spending on public services on the average salary recorded would go from 4% to 13.9%..
Of course, this is an exercise, but the government has already announced that it wants to proceed quickly with the elimination of subsidies and the timing is still uncertain.
After 25.5% in December, with an alleged increase in the cost of living of 20% in January and 20% in February, the accumulated inflation will serve as an argument to start talking about a late return of the 800 dollars with a monthly variation of 2%. .
It will be at that moment that the minister Luis Caputo It must define whether it ratifies the fixed exchange rate as an anchor to contain prices.
Meanwhile, a fact to consider that the technicians highlight is that the liquefaction of the pesos that was generated between the devaluation and the jump in prices determines that the demand for money today is half of what it was before the devaluation.
In other words, in real terms, there are much fewer weights reverse course in the face of a much higher price level for goods and on the verge of an increase in services.
The fall of Q (quantity to sell) after the stampede of P (record inflation) brings the orthodox Milei adjustment into a new phase, which is in full development.
Source: Clarin
