The meat, the tomatoes, the gasoline, the tariff increases, the devaluation, the rise in tax rates or even the parity rates… Everything serves to find reasons to explain why prices rise, constantly and generally. The latest data shared by INDEC showed a 3.9% increase in January and 50.7% in the last twelve monthsa gap that has remained in recent months despite official efforts through controls of various kinds, traps, freezing of rates and exchange rate delay.
In a year marked by uncertainty in the negotiations with the International Monetary Fund (IMF), pressure from the imbalances that are dragging on and an international framework that provides less foresight than in other circumstances, the question always arises again: why inflation has been part of the Argentine economic landscape for more than half a century. Governments pass, as do the dominant economic ideas and schools, but the dynamics of prices remain intact, with more or less brief oscillations.
Bone scan. A first look at the items that end up composing the consumer price index (CPI) shows notable differences in terms of its annual variation, to eliminate seasonal or occasional differences. Above the average (50.7%) were the items of Clothing (66.3%) and Restaurants and hotels (65.8%), two that had been particularly affected by inactivity during the pandemic. On the other hand, Education (56.4%) and Transportation (54.9%) barely exceeded the meanto. But others, like Housing (29.1%) and Communication (26.8%), were well below. The explanation: regulated or directly frozen values.
This unequal behavior adds pressure, especially in the items that remained submerged and that, precisely, were the adjustment variable in an attempt to control inflation. The same thing happens within the broad spectrum of food, which hides abysmal differences between “fresh” products, deregulated, and those that are subject to more or less rigid controls.
Anchors. In its latest report, the consulting firm Ecolatina maintains that this year inflation will return to the 50% zone. “Using anchors to contain prices – tariffs, exchange rates and price freezes – as happened last year, will no longer be possible,” he predicts.
It is based on the increases that have already been authorized (such as 9% in the price of fuel, for example) and the seasonal factors that will come in March (clothing and education).
The so-called “anchors” to which he alludes Ecolatina are none other than control over variables that are drivers of inflationary energy, already known from recent history and from the weight in the basket that ends up making up the CPI: the amount of money in circulation, the reference exchange rate that affect in industrial inputs and in the food value chain, the rates of public services and the price of fuel.
Money. The first link in the chain of “multicausality” is the monetary issue. At this point, it seems that a consensus has finally been reached among the majority currents of economic analysis: the increase in the general level of prices is linked to the increase in the amount of money in circulation. Camilo Tiscorniadirector of C&T Economic Advisors understands that if there were suspicions that inflation has monetary causes, “Obviously with everything that was broadcast, an answer can already be found: with an increase of between 50-60% compared to last year, it is inevitable.”
For its part, Francis Gismondidirector of Empiria Consultantsputs the focus on the inertia and the strong issuance at the end of the year as conditioning factors for the year’s inflation, which the estimate will end up being higher than that of 2021. “The expected increases in rates and the greater devaluation would help to increase inflation. But if the agreement with the IMF is approved and the goals of lower emissions and a positive real rate are met, inflation could begin to fall in 2023”, he maintains.
The monetary issue does not arise capriciously, but as a result of the fiscal deficit, but of the central government but also of the financial one: the snowball of the financial instruments that the State itself uses to absorb part of the pesos that it pours into the market above of the demanded. “The interest of the Leliq and the passes, with the higher rates foreseen for this year, could reach 3% of GDP this year. That puts a floor on the monetary issue, although the total issue, if the commitment made with the IMF is fulfilled, could be less than that of the last two years”, explains Gismondi.
Bills. In the present discussion about the fiscal adjustment, the rates of public services occupy the center of the scene due to the subsidy with which it was tried to cushion the growth of costs (the devaluation first and those of production or distribution, later) and prevent them from turning to higher prices.
The Economist Esteban DomecqPresident of Invecq, emphasizes that the speed at which utility rates are falling behind is alarming. “Between 2019 and 2021, electricity was cheaper by 50% in AMBA for a typical consumption and 40% in the rest of the country. The pace of the current decline is significantly higher than that of the 2002-2015 period”, he stresses. For tax purposes, he projects that if no changes occur, subsidies will consume US$ 14,576 million, against the US$ 11,042 million consumed last year.
Stage. With this panorama, the foreseeable thing is that the year brings its own complications in terms of inflation. The REM, the survey carried out monthly by the Central Bank among the main economic consultants in the market, predicts that inflation will be at 55% for this year and 45% for the next. Tiscornia explains the logic of these figures: “it is intuited that the year will be complicated and that gives it inertia so that expectations exceed 50% and on this, in addition, it will be necessary to charge what happens with the exchange rate, wages and the tariffs, things that will feed the general level of prices”.
The delay in the exchange rate was 26% during 2021, in an anti-inflationary policy in an election year that cannot be repeated in 2022. But an acceleration above the official dollar’s inflation is not discounted either, so the gap will continue to be a distorting element in the medium term and would slow down a bid to obtain more foreign currency to expand the Central Bank’s room for maneuver. Perhaps it will lead to seeking alternative sources of credit financing (international organizations, China or Russia) that would cushion the shock.
Once again, the fate of the agreement with the IMF will be decisive, not to curb these projections but to avoid dramatically aggravating them. Paradoxically, the “anchors” that could serve to placate it are the fiscal adjustment and the activity that will not be able to sustain the pace of recovery in 2021 due to the lack of dollars to expand the import of inputs (what is happening today with the automotive industry), which in turn will put a cold shoulder to the parity that, logically, try to compensate for the loss of purchasing power of the last two years.
Once again, a labyrinth that defies ingenuity applied to economic policy.
