Inflation: it is estimated that it will be lower in February, but could return to 20% in the coming months

Inflation is one of the items that most worries Argentines. The CPI accumulated during the Alberto Fernández era exceeded 1000%and one of the promises of Javier Milei is to lower it forcefully. To achieve this goal, the new administration is pursuing a orthodox shock plan, based on a fiscal, wage, currency and monetary-financial anchor. According to a private study there are reasons to think that all this it may not be enough to lower the price index which is expected to slow in February to 15%; but then it could return to 20% in the coming months.

According to the Scalabrini Ortiz Center for Economic and Social Studies (CESO), they view the success of the program with skepticism, because “does not attack the inertial factors that explain the current inflationary regime”

What is the reason for this? For private practice, “There will be significant increases in public service tariffs in the coming monthstransport and goods such as education which have a strong seasonal component”, and this “will cause a new wave of price increases”.

“In a scenario like the current one, the inertial factor is a fundamental component and “If it is not combated, it will be difficult for inflation to decline steadily.”underlines the document, which also warns about this “none of the anchors mentioned seem to solve this problem.”

“In a regime of high inflation, any price shocks on key variables (such as a sharp rise in the dollar or rates) accelerates inflation not only in the present, but also in the future as it is perpetuated by inertial components (indexing of contracts and expectations),” he indicates.

And in this sense they underline the increases in the tariffs of public services, such as electricity, the schemes of which have already been published and those “the increases will have a strong impact on inflation in the coming months”. The same, according to CESO, “range from 71% to 190% in the case of the variable tariff, e up to 310% on fixed expenses”. “It also comes ahead of the public hearing held last week a reduction in subsidies that would imply 1% of GDP they will have to deal with homes and businesses,” he adds.

Furthermore, increases in public transport – also due to the removal of subsidies – and the increase in fuel prices will come into play. Golden point to take into consideration, for a seasonal matter, It’s “the beginning of the school year”, which cause the “Education” and “Clothing and Footwear” categories to undergo strong increases in the month of March.

“There are many prices already fully indexed. The most practical example is rents, but it is not the only one,” the report reads. And he adds: “Although we mentioned that it is a tool of the government is the wage anchor, The truth is that, due to pressure from the labor movement, this may not have any effect on registered workers in the private sector.” Indeed, this is what is observed in the first months, where the parity of numerous sectoral branches is at or it even exceeds current inflation.

Finally, CESO economists underline that ““exchange rate pegging appears to be unsustainable”. As the months approach when most of the harvest will be liquidated and the current exchange rate loses relative to inflation, there will be pressure from the various exporting groups for a new devaluation. In fact, the IMF has already gone ahead and suggested to speed up crawling peg by 2% to 8% monthly.

“When this happens again we will have another round of price increases this will accelerate or maintain (depending on the future pace of exchange rate policy) inflation at high levels, even in the context of a strong adjustment program with an economy in clear recession,” he concludes.

SN