If the hundreds of speeches and interventions by global leaders who gathered this week in the Swiss winter resort of Davos, “uncertainty”, “cooperation” and “inflation” would monopolize the positions. Or because it is the dominant sensation in the circles of world power or because the old normality is missed. An Argentine world? At least multiple caveats to support last year’s policy stance: interest rate hike to curb inflation. Already in December, the retail index in the United States fell 0.3% and, annualized, gave a modest increase of 6.5%.
Numbers
This factor (especially that of “imported inflation” due to the pandemic and the war in Ukraine) was the great official argument to contextualize why a deceleration of the hyperinflation thresholds to a rate annualized rate of 80% (projecting 5.1% of the CPI for last December). Before the INDEC released this last data, there was a strong expression of wishes expressed by the Minister of Economy himself who expected a figure that would start with 4. It could not be, but the expectations translated into the 2023 Budget and in the suggestions for the renegotiation of parities they point to 60% per year: 4% per month as the inflation target in an election year in which rising prices are the main economic concern.
Like a pincer movement, Sergio Massa it underpinned this objective with the entire arsenal of economic policy at its disposal: establishment of guidelines for rate increases, mini-devaluations of the official exchange rate, interest rates transmitted by the Central Bank, the aforementioned parity suggestions and the program of Fair Prices to which was recently added a peculiar system of outsourcing control by unions and pro-government piqueteros.
Everything adds up when it comes to being able to show, as soon as possible, a number that serves to convince that economic policy is on the right path and not that it only avoided its shipwreck last August. The controversy over the sustainability of the tools used is enhanced with an effect of both handmade carving in them: every time the authority intervenes in a market and creates alternative prices, their measurement and the representativeness of the indices used to measure, for example, inflation are difficult.
the economist Maria Castiglionidirector of C&T Economic Advisors warns that this is what, for example, now happens with prepaid or tariffs: “in electricity distribution, instead of only two categories of residential consumers, you have eight and then you have to multiply them by three (if they have a total subsidy , partial or nothing): 24 in total. Although one would like to have a good diagnosis, it becomes very complicated and therefore it is more complex to make good decisions”.
The same occurs with the rest of the public tariffs, the controlled price programs or the official dollar (euphemistically that of the Single and Free Exchange Market). There is no longer one price but so many and choosing one over another is already subjective. “The INDEC records every month what is the proportion of the goods that are in the program of Fair Prices. It is a very difficult subject because what should be taken into account is what it represents in the basket and there is a share of subjectivity and it is difficult to estimate the appropriate index”, exemplifies Castiglioni.
The kitchen
These difficulties coincided with an official proposal to promote the full autonomy of INDEC, something that opportunely had the consensus of economists in the market but that today, in a context of achieving a desired CPI at any cost, is suspect.
Castiglioni does not see the initiative as urgent or opportune when there are still difficulties to be faced when it comes to establishing the way to calculate the index used. Sebastian Menescaldi, associate director of eco go, comments that “in the market it went down well and it could be very positive to be able to take it off the Ministry of Economy, but I don’t think it’s the best time to propose it. We are still seeing how the different prices are imputed for the indices with the suspicions that it can generate”.
In his memory is the intervention suffered by the statistical institute, between 2007 and 2015, in which the price indices prepared were as controversial as they were useless to know a key data in the Argentine economy: inflation. “patriotic drawing” boasted of the militancy embodied in the leadership of the then Secretary of Internal Commerce, Guillermo Moreno, so that no statistical contingency could ruin the sought economic policy objectives. Alternative indices were even built (the loudest was the “Congress” for which the consultants hid behind parliamentary privileges to give their numbers) and controversial fines were even imposed for disclosing their results.
Approach
Is there today a distortion in the values that conspires with the representativeness of the official indices? Jorge Vasconceloschief economist at IERALestimates that with the recent CPI data and the current level of interest rates (already in positive terms), bank deposits could continue to accumulate in the first part of 2023, but “pent-up inflation” will continue to build pressure.
Estimates of IERAL, account for a gap of at least 20% between the price index and key variables (wages, exchange rate and tariffssince 2018). “In principle, this difference indicates that there is inflation despite the attempt to keep wages, rates and the exchange rate under control,” he explains. At the same time, he points out that it is one of the many indicators that allow us to see the degree of distortion of relative prices in a distortion, which, in turn, ends up being corrected, but it is unlikely to occur due to the decline in prices that were “advanced” .
In a recent report by the consultancy INVEQ chaired by Esteban Domecq, It projects that this accumulation of controls and the distortions it generates in an inflationary context ended last year with a slowing trend, but it does not completely remove the risks for this year. It points out that inflation during the first three quarters of 2022 was partially offset in the last three months of the year mainly by the seasonal and core components, while the regulated ones continued to rise to reduce at least slightly their delay.
“However, this apparent moderation in the cruising speed of prices is not without reasons that could boost it again, mainly due to the nominal race between inflation, the exchange rate and the interest rate, which during 2022 was a constant that fueled macro instability”, he assesses.
The increase of the monthly devaluation rate of the official dollar at 6%the positive rates and the delayed tariff recomposition hit the waterline of the stabilization attempt. “The economy lacks fundamentals to go through a process of disinflation in the short term, so we estimate that the price increase will remain on average in the order of 6% per month during 2023”, he concludes. Once again, the battle to be waged will be for the modest prize of double-digit annual inflation, but with the challenge of the demands of an election year. Almost nothing.
