Inflation: When will the rate return to single digits?

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The need to reduce inflation is an essential and urgent issue for the economy. Economists It is estimated that this result will only be seen towards the second half of the year.

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From the consultancy firm MAP Economic & Business Advisors, they assure that “lowering inflation is fundamental, not only for social and political issues, but also because making progress in the fight against inflation puts the government in a better situation than the opposition , providing him with a greater ability to negotiate support, they explain. “The downward path of prices is crucial to ease pressure on BCRA monetary policy and contain devaluation expectations”they assure…

According to the Central Bank’s (BCRA) Market Expectations Survey (REM), inflationary expectations suggest a slower moderation of prices, with a convergence to 10% only in May/June.

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From the MAP they observe that “the implementation of a comprehensive and coherent stabilization plan translates into a recovery process and disinflation starting from the second half of the year”.

The estimate is given on the assumption that the Government will maintain a managed float scheme, albeit with a monthly devaluation rate still lower than the rate of price advance, albeit increasing to avoid rapid appreciation of the real exchange rate.

A new increase in the exchange rate is expected, of around 20% monthly in April. On the inflation front, after January data which indicated an increase of 20.6%, the consultancy firm continues to forecast double-digit rates for the next quarter. “To the extent that fiscal and monetary adjustments work, Prices would begin to moderate from May/June of this year, closing the year at levels just below those of 2023. (194.5% in December this year).

When asked about the issue, economist Ricardo Delgado, director of the consultancy firm Analytica, explains: “instead of asking when inflation will be in single digits, we need to ask how”, he says. “How will this government sustain a draconian fiscal adjustment, this violent monetary tightening and the decline in economic activity. If you can do it, “The goal of reaching the single-digit price index could come in June or July.”.

This would happen in the following context, warns Delgado: with the Central Bank purchasing foreign currency to pay for these purchases, and with interest and remunerated liabilities becoming ever smaller; absorb pesos through Treasury operations, i.e. by removing pesos from circulation.

In the short term, this consultancy estimates it Inflation will increase by around 15% in Februaryand that in March the slowdown will certainly stop due to a seasonal issue.

According to the Equilibra consultancy firm, directed by the economist Lorenzo Sigaut Gravina, “if the Government manages to sustain the crawling (the gradual adjustment of the exchange rate) at 2% monthly, in the second quarter of the year, inflation could fall to single digits monthly once public service tariff adjustments are made, which would allow the purchasing power of income from work to be recomposed. But since according to the FM staff the real exchange rate is already close to equilibrium levels, the only way for inflation to return to the monthly figure in the short term is to incur a significant lag in the exchange rate.

Otherwise, if the Executive consolidates the fiscal adjustment and finishes ordering relative prices without delaying the exchange rate too much, “it is likely that green signals will begin to appear in the spring. But if the economy does not stabilize, the recovery could be difficult and slow”, warned Equilibra.

Source: Clarin

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