The increase in the CPI for April was very high (6%) like the year-over-year measurement (58%) but underneath that photo, a more worrying film is slipping. A projection for that same month shows an annual 101%, but, even understanding that it could be an exception, the projection for the first four months of the year shows 86.5%.. This figure would be confirmed if the estimates for May are not far from the previous average. For example, that of C&T Economic Advisors would show around 5.2% and a similar figure the projection of EcoGo after three weeks: 5.3%. Apparently the 45% floor included in the agreement with the International Monetary Fund has already been forgotten. The first to perceive it are the trade unionists, pilots with many flight hours to their credit, who are asking for 60% as a floor in their joint ventures, but with trigger clauses or reopening commitment. The effervescence in social demands also smells of accelerated inflation: According to IDESA, in 2021, 4.5% of GDP was spent on all social benefits (see cover note). Is this the prelude to hyperinflation or are we already experiencing this process, but of “low intensity”?
the economist Diana Mondin, teacher of the UCEMA, points out that there is no precise limit to approach the hyper. “Perhaps it happens when the local currency dies and nobody wants it. It is not just a number (50%) that in Argentina we have already surpassed a long time ago. But it will be difficult to enter fully into a process of hyperinflation while the State continues to receive pesos to collect taxes.”, he maintains. “I think that a supply shock is the best option to absorb the amount of pesos left over in the economy, but that is not happening,” she says.
For its part, Jorge Vasconceloschief economist at IERAL, shows his concern about the speed with which the variables are adjusted. “Despite the fact that the program agreed with the IMF limits the issuance of pesos by the Central Bank in favor of the Treasury, the dynamics of inflation and expectations are at their worst”, warns in the latest report of the entity.
The history. With a quick visit to any economic disclosure site, there is something in which Argentina is the main protagonist: inflation. And it is not because there have been spikes in price increases here, as in Germany in 1923, Greece during World War II or Chavista Venezuela. Despite some periods in which prices increased by almost 200% (July 1989), inflation in Argentina was characterized by its persistence. After the unusual decade of convertibility that even included periods of deflation, the CPI resumed its dynamics in 2005, lAfter the logical readjustment of 2002 with the impact of another hyper: the devaluation of the peso of more than 200%. So much so that it forced the intervention of the INDEC and the appearance of “patriotic drawing” of the former secretary William Moreno that even reached the New York courts for a lawsuit by bondholders who were affected by the eventual statistical manipulation.
The money factor. A classic rift between economists seems to have settled in light of the Argentine experience. With the data on inflation in hand, irrefutable, it remained to conclude what was the relationship it had with the monetary issue rate (banknotes and bank creation). But the inflationary vertigo seems to have ruled in favor of the correlation between the rate of rise in prices and the rate of currency creation.
Francis Gismondi, chief economist of Empiria ConsultantsheThe key to sustaining the monetary scheme is, precisely, in the restrictions that the Government was adding to limit the effects of the super monetary emission from the pandemic.
“The essential thing was to maintain the demand for money, since when it falls, the entire monetary system collapses and the pesos almost disappear. The silver plan generated the current inflation and there we can see that the time lapse between more spending and its monetary effect is happening faster, because in general, the more stable a country is, the longer it takes to have an impact”. Gismondi points out that in Argentina this “delay” was between 6 and 12 months, but this period was shortened.
The reasons for this “rebound” are several, but it synthesizes them into two important factors. The first, that there are no savings instruments that can beat inflation, which encourages you to get rid of the weight and that increases the speed of money circulation. Other issues that influenced the short rise have to do with external aspects (alteration of the real, the war in Ukraine and its impact on the price of commodities; more expensive freight rates; wages, rates, etc.). “But in short, in the long term it is all monetary because even the war did not affect more than marginally”, Gismondi concludes.
The article “Some monetary facts”, by George T. McCandless Jr. and Warren E. Weberpublished in 1995 in a “journal” on economics, the Federal Reserve Bank of Minneapolis Quarterly Review reached a resounding conclusion. It took 110 countries for a period of 30 years (1960-90) to investigate the link between the monetary issue rate and inflation to verify that there is a strong correlation between both variables; that price increases do not correlate with an increase in the supply of goods and that inflation is inversely proportional to the rate of increase in output. With the particularity that McCandless is an American economist who joined the staff of researchers at the Central Bank two decades ago and taught postgraduate courses at universities in the country on monetary policy.
The way. If we accept the decisive influence of the role of the monetary issue in current inflation, we will not have discovered anything new. But yes, seeing the dynamics and the causes for which it is climbing steps with no solution in sight.
Vasconcelos reinforces the idea that the fiscal deficit is not being reduced consistently, which casts doubt on the achievement of that goal. “Public spending in March rose 20 percentage points above genuine income, in part due to the fact that subsidies, instead of shrinking this year in terms of GDP, would be increasing by 0.8% “he warns.
Hyperinflation is not reached by a desire to liquefy state liabilities, but sometimes by the good intention of avoiding a recession. Gismondi emphasizes that, if inflation continues to run at 5 or 6% per month and the monetary issue goes at 1%, you could even have both at the same time: inflation and recession. In 2020 it was issued for 7% of the GDP, in 2021, 4% and the commitment with the IMF for this year gives another 4% (1% for the Treasury and 3% to face internal debt), of which for December 30 June half will have been issued. This, he considers, is already very challenging because the strong issuance season is, historically, in the second semester.
As you also observe Esteban Domecqnot all prices in the economy are “running” at the same speed, so “The Argentine economy is accumulating repressed inflation, product of the changes in relative prices that have originated in these three years as a consequence of traps, controls, freezes and restrictions in general.”. Hyperinflation is not a current reality, but the road to a different qualitative dynamic is paved with good intentions.
You may also like
