It is not just any ghost: for the Argentine collective memory, a double-digit monthly inflation sounds like the prelude to hyperinflationary vertigo. Not only because of the remembered crisis of 1989 that it unleashed, in July the early handover of power by Raúl Alfonsín (with an CPI that in March had once again remained in double digits -17%- doubled in April -33%- and a little more in May -78%; before reaching monthly triple-digit peaks in June -114%- and July -196%-). The price raid of that time only appeared again at the end of 1989 and beginning of 1990, which led to the Bonex plan by which fixed terms with astronomical interests were exchanged for dollarized bonds. The calm only began in April 1991 with the arrival of convertibility and a decade of price stabilization, even with deflation as a corollary of distortions and, when not, public spending that did not adapt to the demands of a rigid monetary system.
Expectations. The news last month was the confirmation that Inflation is still valid as it was at that time: 12.4% in August for the CPI, but the wholesale index grew 18.7% and the construction index 14.7%. Thus, according to comparative calculations of Salvador VitelliHead of Research Romano Group, The Fernández administration accumulated an inflation of 648% in its first 44 months in office, almost triple that achieved by Mauricio Macri (+240%) and much more than the two governments of Cristina Kirchner (+166% in the second and +112% in the first).
Like a curse left by the previous decade, the traumatic exit from convertibility in 2002 could never find price stability as a regular element, in part because the goal of twin surpluses (fiscal and commercial) fell into the ambush of expansion of spending and “let’s go for everything” as campaign axes (2007 and 2011).
The fear of an acceleration in inflation after the October elections is not arbitrary. During this year and especially since the Minister of Economy was anointed as the official candidate, prices suffered conflicting pressures: on the one hand, the succession of measures already certified in political jargon as a “platita plan”: exchange rate compensation, soft credits, VAT refund and the reduction in two taxes that are among the five that collect the most, Earnings for people physical and withholdings for some products.
On the other hand, the continuous monetary expansion to finance this growing fiscal red and the snowball of securities issued to finance itself, feeds itself as the only way to avoid inflationary collapse rises, but requires an increasingly higher rate. . A vicious circle that spirals rates and inflation.
Faced with these two opposing pressures, the tool used is to control prices and foreign trade variables (official exchange rate, stocks, taxes and restrictions on foreign trade). For example, since December 2019, the official dollar will have grown by 480% in total, while inflation (with theprojection of September included) was 720%: that is, the official exchange rate was delayed during this government by 40% in real terms. Perhaps due to this insistence on maintaining this “commercial dollar” as an inflationary ballast while the monetary issue financed the deficits, it generated a gap that during this month oscillated between 100% and 120%. A balance that is impossible to restore with an isolated measure, such as the 22% post-STEP devaluation (which added to the acceleration in the previous week) that was transferred almost entirely to the prices of food and beverages during August and so far in September.
What’s coming The private projections show only a 5% floor for September due to the statistical drag effect. Maria Castiglionidirector of C&T Economic Advisors It points out precisely that the great inflationary impulse in the last two weeks of August and at the beginning of September gave way to a certain slowdown in prices, helped by the decrease in vegetables in the case of food. “They had been averaging very high levels; if the pace had been maintained, inflation would not have been 12%, but closer to 20%.”Explain.
The consultant Eco Go projects for September an 11% increase in the CPI, but below the food category, which is estimated to be 13% for the month. But for October, a slowdown could still be projected, but in the middle appears the milestone of the elections on the 22nd of that month. “Supposedly, with all the agreements that were made, freezes, etc., it should be in the single digits. Now we are in an electoral process that is very uncertain and the gap will probably skyrocket again between now and October, which makes it unlikely that the government will achieve single digits for that month.”analyze Sebastian Menescaldi, Associate director of the consulting firm.
Furthermore, the projection of fiscal and monetary expansion with an electoral objective will accelerate times and fuel devaluation expectations for October and, with it, another inflationary jump. Eco Go estimates that the total cost of the entire set of compensatory measures is close 1% of GDP, of which almost 90% is borne by the Nation. “The 2023 silver plan impacts prices and puts pressure on the exchange rate: we estimate that the Central Bank between the new dollar, soybeans and the use of reserves to try to sustain it, then remains in an effort that does not translate into an increase in Bookings“Adds Castiglioni who also highlights the role of expectations in determining how much will end up being transferred to prices and with what timing.
The trap. If anything was clear last August, it was that, in these circumstances, any devaluation attempt will come much sooner than in another situation of delay of the exchange rate to the shelves. In 2002, for example, the value of the dollar stabilized at three times that of convertibility, but prices did not feel that impact and the CPI only rose 41% that year before falling to just under 4% the following year.. But today the circumstances are different and the indexing mechanisms are already oiled. Retirements, for example, as they adjust according to past inflation, began to lose purchasing power as inflation accelerated. They will end up recovering when it can go down or stop, but in the meantime the race will always be uneven.
The joint ventures, which in 2001 were negotiated every one or two years, are now closed annually with trigger clauses and periodic reopenings as the CPI gains new momentum. This is widening the other gap: between those grouped in strong unions and with bargaining power in industries that survive and the informal ones, subject to the inclemencies of the market. He Poverty Nowcast that the economist elaborates Martin Gonzalez Rosadaof the Di Tella Universityalready assumes that even when there is no new devaluation, andThe poverty rate was estimated for August at 43.2%. But there is no one who can assure that the combination of a growing exchange rate gap and an electoral result that fuels devaluation expectations will end up sentencing a new inflationary spiral. Even though it is predictable, it is still an uncertain scenario.
