President Javier Milei said before Congress Friday night that inflation “will continue to decline dramatically and the exit from stocks is approaching.”
It will be like this? Clarion He consulted economists to give their opinion on the matter. Inflation and the dollar – closely correlated – will shape economic expectations for the entire first half of the year in the coming weeks. If the slowdown continues, Javier Milei’s government could soon emerge from the trap; while if a rebound in price changes is observed, the economic plan will be disorderly.
Miguel Kigueleconomist and executive director of the consultancy firm EcovisionsShe said: “Inflation will fall because it is at very high levels. Today it reflects the effects of one-off increases (exchange rate, interest rates, prepaid cards), but then fades. The challenge is to get him down from where he was before; 8% to 10% monthly will be between April and May, but at 2% or 3% per month, it will be more difficult“.
“Other countries have done it. We will have to think about it stabilization and shock programs such as the Israeli one of 1985 or the Brazilian Real Plan of 1994. Dollarization would be a solutionbut there are no dollars, we will have to look for other alternatives,” he said.
Regarding exchange rate restrictions, Kiguel said: “You can get out of the trap, the exchange rate gap today is small (25%), which indicates that most of the problems that existed have begun to be resolved. We are close to exiting stocks, perhaps by mid-yearbut the financial repression would end, the trapped pesos who cannot bear a negative real interest rate today will be released, and the whole party will change, it should let the dollar and rates rise. “And regardingdollarization, he considered:”If there were no dollars it would be like playing with fire“.
Haroldo Montagu, on the other hand, is more cautious. Former Deputy Minister of Economy (2020-2021) and current chief economist of the consultancy firm Vectorindicated: “It is likely that the February inflation was lower than in January, we gave us 14%but without the full impact of rate increases and with the dollar stretched, just the inertia of devaluation. Taxes and education increase in March; It is a seasonally high month and can perform superior to Februarywhich interrupts the process of deceleration of inflation.”
“If that happens, The dollar may be very weak and exporters do not want to liquidate their currencies with the blend exchange rate (80% official and 20% Cash With Liqui, CCL). Farmers will be wondering whether they should hand over their dollars or wait for another devaluation or reduction in withholdings,” Montagu warned.
And he added: “That would be saying The reserve accumulation strategy is in danger. If inflation doesn’t fall, dollars won’t come in. “Today we see a lot of inflation for a small correction in relative prices.”
Regarding the elimination of currency restrictions, Montagu said that with negative net reserves there was a risk of “spiralization of inflation” and that in this context not evendollarization would be feasible, but rather, perhaps, competition currency.
For Nicola Gadanochief economist of Empiria consultants“Questions remain as to whether inflation can continue to fall rapidlyand is linked to the maintenance of creeping picket (gradual and managed devaluation) at 2% monthly over a longer period of time.” “Inflation generally does not behave in a downward linear manner and there are relative price adjustments such as those of energy and transport and some delays in the education sector (which increased by just 8% in the two-month period December-January), healthcare. If inflation does not fall, there will be a sharp appreciation of the exchange rate,” she indicated.
He also noted that “We are closer to exiting equities because there is an improvement in reserves resulting from significant accumulation and a decline in the Central Bank’s remunerated liabilities (BCRA).” However, he explained: “But reserves are still negative. “And it’s not clear that there are any problems with the demand for money.”
Finally he said: “Government must be handled with caution, monitoring the variables. “They are convinced that at some point we will need to get out of the dollar trap, while minimizing the risk of another jump in the exchange rate.”
Meanwhile, the executive director of EcoGo, Marina Dal Poggettonoticed: “Inflation is starting to slowly decline. There is a question mark as to how the dollar will continue blendand what will happen when the import installment payments end. The question is whether the pace of disinflation will allow us to leave the exchange rate anchor and whether the dollar, interest rate and prices are running at the same pace by mid-year.”
For the economist, the balance sheet of the BCRA is improving, but the interest rate in pesos remains very negative and the remunerated liabilities, the Treasury debt against BCRA and the short-term debt of Bopreal continue, so it will be so easy to dismantle the exchange rate regulations, with strong “pent-up demand” for dollars.
Source: Clarin
