How high should the dollar rise to catch up with inflation?

Despite the marked increases in recent days, there are several dollars that exist in Argentina I’m still behind inflation. In the first five months of the year, the consumer price index increased by 29.3%, as reported yesterday by INDEC.

Between January and May of this year, the fastest moving dollar was the official dollar, which advanced 16.5% in that period and now, in mid-June, it reaches the 18%.

Further behind the prices, however, the alternative dollars: Until June 1, they had practically the same price at the beginning of the year. In between there were ups and downs, especially at the end of January, when the Azzurri, the MEP and the countryside with liqui reached peaks that until last week were the highest of the year.

In the last few days, these dollars have left their drowsiness and thus come in mid-June with increases of 18% for liquid contact, the price at which the companies are managed, and del 16% for the MEPthe currency that savers can access through the Buenos Aires stock exchange.

In the case of the blue dollar – that’s yesterday it went from $ 216 to $ 224 and had the most marked jump for a single day since October 2020-, the increase is 8% so far this year.

To equate with inflation, cash with liqui should arrive today $ 268. In the case of the MEP dollar, it would go to $ 255 and in the blues, which opened the year in $ 206would rise $ 265.

The official dollar, if it follows the path of inflation, should enter $ 133, while the savings dollar, with taxes and surcharges, would go to $ 230against the $ 211 of today which make it the cheapest on the market.

still inflationary

Despite the lag with respect to inflation, there is no prospect that the government will greatly accelerate the devaluation rate so that the wholesale dollar and prices go hand in hand.

The main reason is that the inexpensive andit is using the dollar as an inflationary anchor to prevent the indices from skyrocketing to even higher levels.

Inflation in May marked its second consecutive decline, but the outlook for the year still remains bullish. The projection of annual inflation in two months it goes from 60% to over 70%. If the official dollar accelerated, the annual expectation would rise even more.

The risk of this strategy of keeping the official dollar under pressure to contain prices is that the gap against the rest of the dollar widens. If the gap widens, the chances of alternative dollars starting to be taken as a reference for price formation increase.

In recent days, the prices of bonds in pesos as they adjust to inflation have collapsed, due to the distrust of investors and the fear that the government may reprofile those bonds. Added to this was the devaluation of other regional currencies which reinforce the idea that the peso is backward.

This resulted in alternative dollars entering a rally only surpassed by the August 2018 devaluation (25.5%), the post-presidential PASO devaluation of August 2019 (32.9%) and the start of the quarantine in April. 2020 (19.5%), indicated by Portfolio Personal Investments (PPI).

Thus the gap between the Azzurri and the officials reaches 83% and jumps to 95% compared to the contact with liqui, which brings it dangerously close to 100%. “It is worth remembering when the gap exceeds this threshold, fears of a moderate jump of the dollar in the official market awaken, even if the government seems convinced that it has it as the last standard to yield. The scenario is very different from the previous year, when the ruling party faced the end of the dense harvest with a gap that has just exceeded 70% “, indicate from PPI.

AQ