While economists debate whether what has happened since the Russian invasion of Ukraine constitutes a fortuitous event that casts a “unexpected income” for some or a “black Swan” that accelerates the conflictive fronts for others, local inflation hit another jump. The once monthly 4% ceiling became, as of this year, a new floor: projecting the first quarter, the 2022 CPI would be running almost at 82% per year.
It is a curious explanation of the dynamics that had already been manifesting since the end of 2021 when the controls prior to the general elections were relaxed. Or, as rehearsed from the last report of the IERAL Jorge Vasconcelos Y Mariano DeVita“was expected due to the lag with which monetary policy acts, and also due to the distortion of relative prices that had been accumulating and that in March has had a still marginal correction, with adjustments in fuel and energy prices.”
visions. With so many hours of flight in inflationary matters, it is quick to compare with two other previous periods of high inflation: that of the government of Raúl Alfonsín and that which was reborn after 2011. Camilo Tiscorniadirector of C&T Economic Advisors, what differentiates these phases is the scale. “In the 1980s, inflation was much more pronounced than it is today, and compared to the second half of the 2000s, the opposite is that you came from a decade of convertibility, low inflation, disarmed indexation mechanisms and low unemployment with what which inertia was not so complex”, he observes.
What is undoubtedly not surprising about this situation is the coexistence with a high rate of inflation. The “multicausality” with which Minister Guzmán made an effort to attribute the difficulty of success in the short term in the “war” declared against the increasingly unruly prices, is also not up for discussion. “The only strange thing about this inflation, or at least that it is so high, is that it is taking place without a prior devaluation and without adjustment of rates or wages out of context,” he reasons. Francis Gismondi director of Empiria Consultants. For the economist, the current situation is worse “than any episode from 2003 to here, because it is taking place without such a clear trigger, perhaps comparable to that of 2019 from the PASO to the change of government”, he adds. The aforementioned multi-causality is what confuses: the new speed in the price index cannot be attributed to a single cause, but rather, precisely, to the feedback game of several factors.
Indeed. Usually, when the CPI skyrocketed, the accounts of the Central Bank were immediately looked at to see the evolution of the monetary issue rate. But this time, two factors are involved here: the lag in time between the creation of money, on the one hand, and the demand for money, on the other.
In the first factor, the jump caused by the “platita plan” or the ruling party’s idea of mitigating the electoral defeat by going to the voter’s pocket, was financed with monetary issue. IERAL warned of this last year, when it annualized the monetization of the fiscal deficit of the last semester and gave it an unprecedented figure: almost 9% of GDP. This spill that constituted a change of gear in the policy followed by the economic team to cool down the economy after the monetary tsunami of 2020, when in November the dollar had touched $190 (only 5% less than the current value, with almost 18 months in middle and 90% inflation in the middle). “Between September and December of last year, the BCRA issued 48% of the monetary base to transfer to the Treasury and almost 70% of everything it issued against the Treasury throughout the year”, they explain.
The other aspect that accelerated inflation is linked to this and has to do with the abrupt fall in the demand for money. Logically, the prospects of monetary instability and the continuous search for safeguards against the erosion of capital led part of the population to change their preference for liquidity, something incompatible with the aforementioned higher issue. Any government can act on one of these legs of the equation (supply) but can hardly get the public to modify these options in its currency portfolio.
Despite the traps, prohibitions and difficulties in circulating, de facto dollarization on the saver’s menu accelerated as inflation progressed. For Diana Mondinoeconomist and professor at the UCEMA“we have lost the mechanisms to save, since the interest rate is negative. Therefore, when a family or a company has pesos, they prefer to consume or take refuge in the dollar. Thus, the speed of circulation of money increases.Explain.
controls. Another aspect that draws attention is that this regrowth has coexisted with controls on prices, tariffs and the exchange rate. The impact that the “segmented” increase will have on the price of public services and its weight in the family basket is not yet known, but it is discounted that it will oxygenate, in addition to the accounts of the companies in the sector, the CPI race. Since August 2018, the rates have been delayed against the general price level and constitute a growing source of monetary issue to mitigate, precisely, the imbalance between costs and income of the concession companies. But this rate hike disguised as “redistribution” will also further increase the gap that already exists in the same market. “ANDthere are multiple controlled or frozen prices”, Mondino points out. “Transferring the cost of energy completely to the private sector today is not only inflationary, but it is also recessive, because families and companies would not be able to maintain their expenses in other areas,” he adds. One more dilemma in the short term for the design of a “sustainable” anti-inflationary policy.
Finally, the salary factor was not present before, but it could start to matter now. The unions with the most bargaining power and in sectors with “unexpected income” have already asked for from 70% (oil) to 85% (truck drivers) and many others express their distrust of inflation in trigger clauses when the parity starts from below. Hugo Moyano’s old motto from when he wanted to escape from the trap of the “patriotic drawing” of the INDEC intervened by Guillermo Moreno, it was only to trust in “the inflation of the supermarket”. Nothing new under the sun.
next stage. “If this year’s monetary moderation continues and the agreement with the IMF is moderately fulfilled, monthly inflation should drop because it cannot continue at this rate. But when the tariff increases occur and the devaluation accelerates, there may be months of inflation above 6% within that trajectory.” Gismondi risks. In their projection, the annual rate will not drop below 60% and only by 2023 may it be lower if they do things right.
Above all, this mosaic of causes occurred this summer, the abrupt jump in the price of commodities, which had already been manifesting itself since the end of 2020, when the pandemic gave way to the global recovery. The data to take into account is that between the belligerents Russia and Ukraine they produce 60% of the world supply of wheat and that it is only the tip of an iceberg of what, for observers such as the analyst Jorge Castro, It constitutes a global conflict that directly affects the country’s agri-food production. A positive data for producers, but a minefield for inflation. One more unknown that is added to this 2022 model puzzle, reaffirming that the adrenaline in the Argentine economy is innate.
