On the last cover of NOTICIAS an unprecedented event occurred: the ten economists consulted, each with their own political orientation but who are not officially working in the teams of the dance candidates, had a convergent diagnosis regarding the crisis they are going through the Argentine economy. This could only happen when nothing is happening or when the variables start to show worrying dynamics. And this is the case.
The numbers. Once again, the light that turned on the alerts was the figure announced by the INDEC on Friday, April 14, after the markets closed and which surprised locals and others: 7.7%. The private estimates that by the end of March had been anticipated by the consultancies that measure inflation every month (and that in the annual computation end up coinciding almost exactly with the official number) already put 7% not as a ceiling but as a floor in this stage of the “war against inflation” that in March completed one year of imperceptible validity.
EcoGo is one of them and it has already modified the forecast of what is expected for this month in a week: it went from 6.5% in the first week to 7% in the second. Its Associate Director, Sebastian Menescaldi, Keep in mind that prices are accelerating and that the jump in the informal exchange rate and inflation in March will probably cause new updates going forward. “Let’s hope that it doesn’t leave a base of 7% monthly onwards because that would be worrisome,” she says. In his weekly report, EcoGo underlines the interference of many postponed increases that are taking place during the first part of the month (such as the increase in prepaid fees, for example) and the constant upward pressure on food, which they already project 8.1% for April.
On the other hand, the data from the survey of prices of C&T Economic Advisors for Greater Buenos Aires in the second week of April show a variation of 7.2% in relation to the same week in March, which suggests that inflation for the month would also be around 7%. “We did see the acceleration during the first week, especially in food; then in the second and third there was a certain moderation, but the initial momentum generates a drag for the rest of the month, so we project inflation that may be above 7% for April” explains its director, Camilo Tiscornia.
incarnate. The Food and Beverages category is where immediate attention is concentrated when the INDEC index comes out. It always had a great weight in the index, but above all in the conformation of the family basket and the poverty and indigence indices. During 2021 and a good part of 2022, the item rose less than the general average. In the last year, this item grew 95% against 94.8% of the CPI, evidencing the recovery of the last months that has been accentuated so far in 2023. But the drought altered the livestock cycle, causing the price to rise in the last quarter. price of meat, with a strong incidence in the average. It is that with little grass, farmers preferred to anticipate the liquidation of bellies rather than buy food or lose more weight, so for a good part of the year the price of meat remained well below inflation (almost half). This process was reversed when the process stopped and the lower supply in the market translated into prices that doubled the general index. It is estimated that in the first quarter of the year, bovine meat increased 50% and also pushed the rise of its substitutes: chicken and pork, which also depend on the cost of food as an input (corn and balanced), also on the rise because of the drought.
Services. Another factor that until this summer was an inflationary “anchor” and has now become a motor is the rates for public services. The chronic delay suffered by the sector since 2020 was due to the incidence on the family basket and overreacting a policy of divorcing the cost of the service from its price. The gap between both values was covered by subsidies that soon had an impact on the fiscal accounts: it is estimated that, together, they reached 2% of GDP during 2022. The constant promises of correction in the face of the repeated requests of the IMF in each review of accounts do not they were able to sweep away that taboo and the solution was the tariff “segmentation” that took a year to come into effect. Only in April are the first bills for electricity services arriving, for example, with their monetary impact. But the inflationary dynamic threatens to dilute very soon all the discursive effort to retrace a path started with the management of Alberto Fernandez. The required amount of subsidies will increase again because costs will rise much faster than income.
The original system developed for privatizations 30 years ago (public hearings with the participation of regulatory entities) is compatible with an economy with price stability. The turnaround began a year ago, with failed forecasts of inflation that promised to be at 45% per year by 2022 and 60% this year. Reality will end up being twice as spoiled if the projections of 120% per year for 2023 coincide with the consensus of economists who are continually correcting forecasts for the Survey of Market Expectations (REM) published monthly by the central bank (There are 40 professional sources, including consultants, universities and study centers). The latest CPI figure, for example, shows a gap of 1.4% between what was forecast in the REM and what happened. In short, we are facing a shift in expectations towards an environment of high inflation and strong “nominal” variables on all fronts..
the dollar again. Precisely the other thermometer that expectations were choosing in times of instability is the dollar. Well, due to the work and grace of the fragmentation of the exchange market, today we cannot speak of one but of its whole. While the “official exchange rate” clings to continue being the result of the “single free exchange market” (MULC) it also suffered the wear and tear of three years of its manipulation to remain below the CPI. An inflationary anchor that distorted the market and forced it to be surrounded with restrictions that regulated both the access of the increasingly scarce good and the liquidation of exports. Also the request of the IMF for greater transparency and a more realistic value forced the adoption of a greater speed of daily micro devaluations starting this summer, stabilizing between 6% and 7% per month, but that would not be enough to compensate for the previous loss of relative value or to reach an eventual new jump in the monthly CPI.
At the center of this speculation is the chronic shortage of foreign currency, partly due to the market intervention that encouraged it and exacerbated by a historic drought. FADA calculated that, on average, each agricultural producer gave up 79% of their income during March in favor of the State. It is estimated that the decrease in the final exportable balance during the year will be around US$20,000 million, almost a fifth of the total exports of 2022 but a figure that is incompatible with a Central Bank that lacks reserves. George Hillof IDESAestimates that April could be at US$1.8 billion in its “net” version, which is not the one that the BCRA continues to report on, in which it mixes credits and bank reserves of deposits in dollars (and which are draining slowly but constantly).
This shortage is tried to be alleviated on two fronts. On the one hand, passing the cap as soon as there is an international credit entity, with currency swaps so as not to use the dollars in the exchange with that country and forcing importers to postpone payments. But it also forces us to continue resorting to export stimulus programs (the successive versions of the “soybean dollar”) which, although it has an impact in the short term with additional liquidations, alters the future market. It encourages the exporter to conduct conditioned reflexes, like Pavlov’s dog, waiting for a new saving value.
The accelerator. Finally, the framework of an electoral-presidential year raised expectations. Fernando Marull (FMyA) compares the monthly inflation rates with a chilling precedent: the end of 1988, shortly before the nominal acceleration that led to the hyper in the middle of the electoral campaign with Carlos Menem as the protagonist, promising the salary and the productive revolution. Until December 1988 the numbers were similar (7% against 7.7% in March 2023) but in February it jumped to double digits (10%) and there it did not stop until 196% in July. Are we facing a similar escalation? We can quickly find differences, but the mere mention of an upward path in an environment of political dispute and uncertainty alarms. Let us remember that the monthly inflation record of July was followed by 20 months of instability before finding the still disputed calm of 1991.
