This month will mark the first anniversary of another war, the one declared by the President against inflation. In the middle, there was everything: declamations about the endemic evil that affected the Argentine economy, the elevation of the theory of imported inflation to the category of indisputable dogma, the election of sectors suspected of pushing up prices and, as always, the untimely lack of control of the dollar to postpone the final victory. It could not be: if in February 2022 year-on-year inflation was already 52%, estimates speak of almost double for the period March 2022-February 2023: 101% yes, As supposed, the calculations of the INDEC they will end up yielding between 6 and 6.5% for the month that just ended.
Cause and effect. The difficulty in slowing down the acceleration in summer prices has to do with several factors that, paradoxically, helped project inflation of 60% for this year and a convergence during the next quarter of the CPI in the order of 4% per month for later get excited about breaking that floor and go for the prize of 3% per month. It could not be and everything indicates that it will be another matter due for the next administration. The consultant C&T Economic Advisors estimated an increase of 6.2% of the general index (against 4.1% a year ago) but still lower than the 9.2% of the Food and Beverages category, driven by the rise in meat in the last two months due to the start of a new livestock cycle due to drought. That is to say, unlike last year, what is rising more than the average are the most sensitive segments that hit squarely in the family basket. For her director, Maria Castiglioni, inflation does not go down because the indexation dynamics is accelerating, for example, now with the readjustment of transport to avoid increasing subsidies. “The Government wants the parities to be negotiated at 30% in the semester, but the first quarter will already accumulate 20% inflation. The tax issue is complicated and indirect issuance continues to fuel it”, he adds.
Another consultancy that habitually measures prices with results that are very consistent with those of the INDEC is EcoGo: for February he gave them 6.4% but 7.7% for Food and they project something close to 7% for March. One of the difficulties that the Government is going through to lower an exchange rate to the CPI is the chronic shortage of dollars, exacerbated by the expectation of a bad harvest. Your Associate Director, Sebastian Menescaldi estimates that, in total, the projected shortfall will be US$25,000 million over what was provided last year, combining the drop in exports due to the climate factor, settlement advances for the soybean dollar and payments to the IMF. This, of course, if some opportune accounting lifeguard does not appear.
The other aspect to take into account is the fiscal red that, although it was improving in the second half of the past, still carries the mass of monthly maturities with which the central bank try not to release all those pesos to the market and, consequently, feed the demand for “financial” dollars and widen the exchange rate gap. The last tender yielded a rate of almost 120% per year, which explains how easy it is to renew the bills, but also sets a limit: Leliqs’ snow globe. What is said, a very short financial blanket.
The dollar, firm. This difficult search for monetary and exchange balance, inflation is undermining a key element: the demand for money. In other words, at a certain level of income, how much liquidity the public is willing to maintain. Obviously, as the CPI climbs, it is deflating. According to the calculation of Esteban Domecq, president of Invecq, the monetary base fell from almost 10% of GDP in November 2019 to 4% last month. This subtracts margins of maneuver to be able to cushion contingencies and deviations, such as those likely in this electoral-presidential year. Invecq calculates that, only Leliqs interests were issued in January $700,000 million, and projects an emission of 6% of GDP for this year. But as the acceleration of inflation eroded the demand for money, the “taxable base of the inflationary tax” is reduced. In short: it will take more and more inflation to collect the same amount in real terms.
In addition, any anticipated excess of pesos is going to impact the current demand for dollars, which will also go through a lean year, this time said with crude realism. While it is being discussed whether the dollarization of the economy (or similar convertibility) would be a solution, the economic agents themselves are taking action on the matter. During February, the central bank lost US$1,081 million of its reservesalmost triple that of the same month last year.
An uncontrolled inflation rate encourages the dollarization of some prices, as has been the case for many years with that of real estate, agricultural machinery or the price of some products more linked to foreign trade. But it also made progress in others that had remained safe: rents (harassed by updates that are not always the same as income) and now with the integration of the formal salary.
The service companies that are part of Argencon (the entity that brings together service providers in the “knowledge economy”) have been asking for a long time to be able to export and avoid the exchange rate gap, the number one enemy of the sector. There was talk of a “techno dollar” or a mix of prices, but the interpretation of regulations and their application still has an even bigger gap than the exchange rate. But in the meantime, companies in the sector face fragmented competition: professionals and technicians decide to vote with their feet (actually, from the same place) and work remotely for foreign clients who pay in foreign currency.. And everything happens outside the official circuit.
So much so that large companies in the field try to compensate for this by paying a percentage in dollars (between 20% and 50%) of the net salary. This week there were some that were added and caused intense traffic on social networks in which beneficiaries and analysts tried to establish the effective percentage of said improvement and the final cost for the company. A predictable mechanism for those who, like the economist alfredo romano (author of the book “Dollarize”), observe that it will be accentuated in sectors related to professional services: “if not, companies are going to run out of people, because salaries measured in dollars are really very low”. A process that, if nothing changes, seems inexorable.
