Another Argentine classic: salaries for the stairs and prices for the elevator, the old phrase coined by Juan Domingo Perón, regains relevance with rising inflation figures. Those were years (early 1970s) also of strong international economic turmoil, political turmoil within the ruling party, but with inflation that barely exceeded three annual digits. The current reflection of this situation only differs due to three factors: the first is that Argentina has already gone through hyperinflationary experiences that marked its economic memory, the social structure changed radically in this half century and that the starting inflationary floor is not the utopia of 0% but of 50% per year.
Trigger. The first results of the war against inflation, officially declared on March 18 by the President, could not have been more discouraging. The consumer price index (CPI) rose in the first four months of 2022 by 23%, which would project (if the same magnitude is repeated) more than 80% per year, well above the official guidelines included in the Budget.
The key in this matter is the dynamics that inflation is acquiring. In a recent study of Jorge Vasconceloschief economist at IERAL about the delayed transition in economic policy, compares the price rise of the first quarter of this year (5.4% monthly average) with that of the previous two (4.1% in 2021 and 2.3% in 2020) and there you can see how it accelerated despite the price controls, the restrictions imposed in some markets and, above all, the use of “anchors” to stop the momentum in the IPC. Vasconcelos recalls that, during the political transition of 2015, inflation was located on a lift between 2.0% and 2.5% per month, while the internal debt in pesos was equivalent to 2% of GDP.. Currently, inflation tends to triple that figure and the magnitude of the Treasury’s liabilities in pesos has quadrupled in terms of GDP. In his opinion, this comparison should strengthen the arguments in favor of recovering the sustainability of the policies. “Avoiding an inflationary escalation, after the excesses of March and April, should be a priority of the ruling party, contrary to what is observed today,” he warns.
Velocity. For Fernando Marengochief economist at Arriazu Macroanalysts, inflation has been accelerating and the jump in March is explained by the invasion of Ukraine, changes in relative prices and seasonal price increases (education and clothing is already a classic in that month of the year). “But inflation had already been very high in previous months and I think this has to do with the fact that there is what we call the “merry-go-round” of relative prices”, Explain. In the jargon of economists, the term refers to the speed with which changes occur in the values of different products or sectors as the others increase. In other words, when inflation accelerates, it also feeds back through a chain of price rearrangements that, in order not to become an inflationary acceleration, requires decision and political power to face it in such a way that changes in relative prices do not are transitory, when they must restore sectoral or even macroeconomic balances. “What we are seeing in recent weeks has to do precisely with this bid between salaries, rates, the exchange rate and profit margins than anything else “he concludes.
shortening and adjusting. The weak link in the chain is made up of people who have fixed incomes that move more slowly than their own basket of products. In the lower band, is the largest group of the economically active population: the self-employed and informal. Perhaps linked to this situation is the latest measurement of the UCA Social Debt Observatorywhich threw 43.8% poorto whom recent experience indicates that inflationary jumps affect informal workers above all and that is why the poverty threshold rises. The universe of parity, above all, is part of a minority of the economically active population (PEA): 28% (and 15% are state), the rest goes the other way.
For John Louis Bourchief economist at FAITHFULwhat happened is that when going from a step of 50% per year to 70%, the wage guidelines are diluted and then the renegotiation periods are shortened, either by “trigger” clauses or by reopening parity. “That leads to a scenario where wages get involved in price formation. In the Services sector, it is vital, as well as in the public sector. In short, without an anti-inflationary program and if you anchor, you will always run behind the rest of the prices”, it states. It is that, in his opinion, the “anchors” that in the short term could serve to contain inflation, if at the same time there is a demand expansion plan and supply is restricted (for example, in the import of intermediate goods and raw materials), is not sustainable.
With history behind us, the perception of a weakening of purchasing power is linked to the acceleration of the price level. And at this point, the defensive reactions go in the direction of incorporating these expectations into the salary negotiation by projecting future inflation or forcing the reopening. “Some will get 80% and others 40%, it depends on the positioning and negotiating power; but if we link wages with sectoral productivity, we must also consider that economic activity slowed down and that punishes it”, he clarifies.
In conclusion, what he observes is that, faced with this accelerated inflationary process, the Government does not know and does not want to stop it suddenly, because if it adjusts for past inflation, it kicks forward. “The only possible scenario is more than 70% and even more in 2023. An “entropic process, that is: a scenario in which persistently few tie and many adjust, but without getting anywhere”he concludes.
