If there is something that is not new in Argentina, it is inflation. Almost a fellow traveler on a par with economic uncertainty and, in recent times, stagnation has been added. In the last 75 years, the country was only able to have annual single-digit inflation in one out of every six years. The rest passed between medium, high and even hyperinflation.
Each one with its own imprint and in a collective learning circuit that cushions its harmful effects, but by its very nature, the architects of short-term economic policy have to innovate in measures and diagonals to be able to take advantage of the inflationary tax and avoid the necessary arrangements to win the declared war but that seems impossible to wage successfully.
The numbers
The latest number of the consumer price index (CPI) of August marked 7% (125% per year if repeated every month) and a 78.5% mark compared to the same month of 2021. That figure, the same that many countries view with concern, but for an entire year, has various interpretations depending on the focus on which attention is placed. The first is the evolution of the cost of living, which has been climbing steps since the beginning of last year: the latter is already double the range through which it spent many months: 3.5% (51% annualized).
That step seemed to be the convergence of the high rate with which Mauricio Macri handed over his administration and the one that occurred last year, in the post-pandemic. Hence, the war in Ukraine and the flight of the dollar was the official argument to explain this acceleration.
The growth of inflation was the common factor in all the economies of the region, showing the double effect of the monetary expansion of the COVID emergency (2020-2021) and the push that the Russian invasion gave to the energy shock that skyrocketed the costs of transport and public services. However, the impact of this common factor was different among the different countries of the region.
Argentina was the country in which monthly inflation shot up versus year-on-year inflation: 1.46% more, against the rest that ranged between 1.40% (Peru) and 0.63% (United States). But others, like Brazil, already show the turning point and in August their CPI showed a reduction against the year-on-year average.
Foods
Another of the factors that, curiously, Argentina shows is that, compared to the largest economies in the region, food prices have risen very little since 2019 (less than 3% above the general level) while in Colombia, Brazil or Chile they have suffered increases more important. Of course, in all these data, they are relativized by the combination of factors that make it much more difficult to find reference prices in the local economy: there is no single value for the dollarthere are different withholdings depending on the export products, foreign trade regulations and the price of public services, just to mention the most relevant ones.
For Henry Szewachexecutive director of IERAL, is a serious problem because it affects the entire economy and points to the coexistence of innumerable distortions due to regulations, fueled by a monetary and fiscal disaster. “Inflation does not arise by spontaneous generation, it was accelerated by the change of regime and the late impact of the ‘Plan Platita’, the non-renewal of the debt in pesos that pushed Martin Guzman to resign and the exhaustion of the reserves of the Central Bank”, he detailed.
In his opinion, this uncertainty led to the non-existence of reference prices: “there is no number because, for example, the dollar has a value, but access is difficult or it is crowned with restrictions. It can cost $150 to $300 depending on the industry and circumstances”. This is also aggravated by the delay in implementing the new rate schedule, but which will also impose as many prices as each consumer’s settings, added to the subsidized value of urban passenger transport.
The danger, for Szewach, is that a path to higher inflation is being marked out as a way to correct these imbalances and be able to find “numbers” that not only mark a single price, but also fulfill the most important role in economic policy. which is to allocate resources and guide consumption and investment decisions. “There is such a mess of relative prices that what is seen as inflationary inertia reveals a bad practice in the execution of economic policy that leads to these corrections being accelerated sooner or later”, he concludes.
ghosts
In the image of an abrupt correction of relative prices always appears the shadow of the “Rodrigazo”which occurred in 1975 when Isabel Perón’s government forced a change in regulated prices, the dollar and the homeless parity at the same time. It was a before and after for economic policy. It marked the beginning of a gradual abandonment of the peso as the undisputed currency and the limit of an inconsistent program such as Gelbard’s “zero inflation”.
For its part, Sebastian Menescaldiassociate director of the consultancy EcoGo, the prices of goods were the ones that grew the most, highlighting clothing, cars and also tourism and entertainment services. “In part it responds to the closure of the economy, to a greater concentration of supply for the disappearance of the producers who fell during the pandemic.” But the contrast is notable with the regulated prices of the economy, which are far behind and could only now begin to recover. In his view, there is a strong inertia that is unlikely to loosen due to the ‘crawling peg’ already installed to gradually devalue the delayed dollar.
“That nominality is climbing: it went from 1 to 1.5%, then to a floor of 2.5%, later to 4% and now it seems that is between 6% and 7% (which is 125% annualized). As there is pension and social spending that indexes backwards, with rising inflation it can be liquefied, so I do not see that it is easy to slow it down since it would imply that the Government would have to make decisions that it does not want about this portion of spending, “he concludes. .
Anchorage
Maria Castiglionidirector of C&T Economic Advisorss, maintains that inflation has less disparity in the items that compose it than in other periods because the regulated prices were those that the Government delayed. And at the other extreme, everything that has to do with the Tourism and Clothing items did take the lead: due to the post-COVID recovery and the obstacles to imports, which had an impact on domestic prices.
“That marks that it is a macroeconomic issue due to fiscal dominance: the huge amount of pesos issued to finance the deficit explain inflation. Thus, a correction of relative prices will always be inflationary with a magnitude and that has to do with the change in expectations”, he analyzes. It is the eager and almost desperate search for what in economic jargon are called “anchors”. In other words, those burdens that retain prices and inhibit their lack of control.
But, as Castiglioni warns, these “anchors” have an increasingly less relevant effect since neither the delay in the official exchange rate nor the freezing of tariffs prevented inflation from accelerating. “That is why what he clearly points out is that ha comprehensive stabilization program is needed to generate a change of expectations”, he summarizes. Something as simple as going back to basics, after so much alchemy and trial and error in economic policy.
