The year 2021 ended on the podium of the most inflationary of the last three decades in Argentina, slightly surpassing the disastrous 2019 (53.6%) and even surpassing that of 2002 (41%), the year of the great devaluation (200%). ). ANDAt a time when the whole world (7% year-on-year in the United States last December) seems to have found in inflation the lesser evil to reactivate their economies after the worst of the pandemic, the concern is about annual rates that in our country correspond to a bad month.
The last Survey of Market Expectations (REM), a survey carried out by the central bank to the most relevant consultants in the market, shows that the projected inflation for 2022 is 54.8% and 43.4% for next year. Apparently, without looking to improve. Maria Castiglioni, director of C&T Economic Advisors estimates that for this year,51% of 2021 is more of a floor than a ceiling. This has to do with the fact that there are many variables such as public service rates, but also other regulated prices, which in 2021 were very contained”. For the economist, what is worrying is how this figure was achieved to project a 2022 scenario that is still in suspense.
In addition, last year was the great dispersion according to the items and the distortion in relative prices that this generates. For example, the national average was outperformed by two items that reacted the fastest to reopening because they had suffered the most from the 2020 shutdowns: Restaurants and Hotels (65.4%) and Clothing (64.6%). Those that did the least were those linked to semi-frozen rates: Housing (28.3%), Communication (35.8%) and Miscellaneous Goods and Services (38.8%).
In addition, some supposedly unregulated prices were targeted by the Government in this election year. For example, with regard to the prices of food and beverages, Castiglioni believes that this year they will try to do the same as last year: control. “The data shows that this is very ineffective. ANDThe rate of increase will be given by what happens in the general scenario and its impact on the evolution of the official exchange rate and what happens with the fiscal deficit and its monetary financing, which is what is generating this great problem.“, Explain.
In the short term, a price can be controlled and sometimes this slab subjects the sector to imbalances from which it is difficult to recover (export prohibition or established quotas for meat or corn, electricity tariffs, etc.) but the economic framework also influences general and in particular the key variables: the monetary issue, the level of activity and the real exchange rate.
eternal red. There were many explanations, ranging from the structuralists to the most stale monetarism, but the truth is that in all these years he accommodated himself and slipped into the institutions that endorsed the situation, hoping that one day the country will decide to return to normality. In a recent report from IDESA, maintains that a true State policy was designed and that is to spend more than income “regardless of the political color or the ideological content of the governments…Thus, the thesis that the main Argentine problem is the disagreements over the crack is weakened. On the contrary, there is a great consensus among the different political forces that maintains fiscal indiscipline as “State policy”, he concludes.
Fernando Marul, director of FMyA, stresses that in Argentina the rise in prices is explained by the strong monetary issue of the last two years (7.4% GDP in 2020 and 4.6% in 2021), some shocks in food (global issue) “but above all by the lack of anchors What is there with an exchange rate gap of 100% and without interest rates that defend the currency?. It also points out that in all emerging economies inflation accelerated, but only in Argentina and Turkey (36%), are they in trouble. “For the rest, it is something circumstantial and it will drop in 2022,” he synthesizes.
The fiscal deficit is estimated for the year that passed at 4.9% of GDP, but while the other countries in the region resorted to the aid of the capital market or other methods of absorbing the monetary tsunami, those channels were already closed for Argentina, on the verge of another default and without additional external credit. In addition, the capacity of internal credit channeled towards the short-term instruments of the Central Bank or the Treasury, which always need more just to keep the snowball rolling, was also saturated because the treasury resumed its spending path as of the second half of 2021 and elections in sight.
The rates of public services, which in the failed 2022 budget carried the part of the adjustment, rose last year less than a third of the CPI (8% gas and 12% electricity). According to IDESA’s analysis, energy subsidies covered about 60% of the cost of electricity. In terms of GDP, in 2021 they represented 1.6% while in 2022 they would represent 1%. If the Government ends up updating the rates, it would be a direct boost to the IPC. What is in doubt is not whether it will be done but how and how much.
The dollar, always. Finally, the other component, inevitably, in price formation is the exchange rate. In this case, the growing gap (100%) since the start of the pandemic was the response to the policy of choosing the “official” dollar as another inflationary anchor: it rose 24% during 2021, that is, a delay of almost 22% during this period against inflation. Without expecting an abrupt devaluation, the mere acceleration of this virtual exchange rate “tablita” will also affect the price level and especially that of food and those related to energy.
The counterpart to this monetary alchemy was the virtual exhaustion of the international reserves of the Central Bank. Fernando Marul calculates that before the big maturity of March 22 with the IMF (US$2,901 million) there will be more maturities for US$1,943 million for which the total net reserves are estimated at US$2,492 million, including what’s left of the savior SDRs.
Therefore, the progress of the agreement with the Fund generates volatility and uncertainty. “It already has a strong impact on country risk, on the demand for bonds, on alternative exchange rates and on the loss of Central Bank reserves. This contributes negatively and impacts more inflation and macroeconomic disorder. After all, inflation is the thermometer that marks an economy with imbalances.
Nobody bets on the magic of an agreement, but to reach it (good or mediocre), a program must first be articulated and it would imply institutional support and be able to turn the debt not into a burden but into a sustainable burden, the initial step of a investment cycle that Argentina today lacks.
And inflation? Only a less hostile scenario and thanks to a program that encompasses the variables that affect the emission-price feedback, will it be possible to think of a gradual containment. The other way: bet on climatic luck and embrace the belief that we are doomed to success.
