Argentina, world champion in the underestimation of inflation

Argentina is known to suffer from chronic inflation. And that the rate will continue to rise too.

But that the world inflation champion country underestimates its own plague year after year says more than a handful of bad accounts.

The details of this error are visible on the Central Bank page.

Month after month, the monetary authority eases the inflation forecasts of consultants, banks and economists. Every thirty days they are asked how much inflation will be in the coming months, months and years. The report is called REM (Revision of Market Expectations).

As of December 2021, the market was forecasting inflation of 54.8% for this year. A week ago, in the latest version of the REM, the estimated rate was 95% (99.4% for the best forecasting economists). In other words, analysts had expected late last year and early this year to have a lower rate of price hike than will eventually be recorded.

This behavior has occurred in four of the past five years.

In 2018, 2019, 2021 and, in the aforementioned case, 2022, inflation was higher than expected by the market. Or in other words: economists, banks and consultants they underestimated inflation.

– in December 2017 the expected rate for 2018 was 17.4%. Finally it was 47.6%.

– in December 2018 the estimate for 2019 was 28.7%. It was 50.2%.

– in December 2020 it was calculated 49.8% for 2021. It was 50.9%.

Only in the year of pandemic inflation was lower than expected (42.4% was expected and gave 36.1%).

In August, the EMN forecast inflation of 6.5% and ended up losing 7%. Official sources last night spoke of “between 6.5% and 6.8%”.

The explanations for why this happens are varied and varied (difficult to predict a rise in the dollar, a run, the easing of monetary policy, many economists have no incentive to respond to this central bank what the real inflation is, etc.).

But the problem is how to predict what will happen to prices from now on so that people and companies protect themselves from rising costs. How much to ask for wage increases, commodity prices.

The September CPI data has already been reproduced. “For this month it shows a floor around 7% in a context of rising rates and an inertia that shows us in our surveys that all prices are updated once a month ”, says Guido Lorenzo, of LCG.

And in 2023? Will inflation go down or up compared to 2022?

The EMN expects inflation of 84.1%. But several economists are starting to let their clients (many of them companies trying to make their own budgets this time of year) transcend that inflation will be higher.

“With contract indexing shrinking and all the variables that run faster, like the dollar, tariffs, fuel, etc., Inflation is unlikely to be lower than this year in 2023”Says the consulting firm Eco Go. And how long does Eco Go wait? 100% flat in 2022.

Economists are already recalculating 2023 and new revaluations will soon be seen.