The illusion did not last long. Toned by the drop from 7.4% in July and 7% in August to 4.9% in November, the Minister of Economy ventured to project inflation for 2023 that should converge to 3% in the second quarter of the year (60% annualized), a consolation prize for the demand for stability, but a great achievement for an economy that already has 15 years of double-digit annual inflation.
Normal. Inflation It is not a new phenomenonafter the parenthesis of the decade of the validity of convertibility (1991-2001), since 2006 it has never dropped below two digits per year, except when the INDEC was intervened precisely for what was militated as “the patriotic drawing” and that ended up distorting issues such as poverty rates, the growth rate or even the payment of bonds tied to certain objectives. The recipes to announce the purpose of keeping it under control were of the most varied: strict price control, agreement with producers and supermarkets, establishment of export quotas for meat, wheat, corn and powdered milk, actions on the costs of credits to zero rate, subsidies to public service rates or recently, the exchange of maximum prices for access to the official dollar. There were no formulas left untried, and yet annual inflation in 2022 was 98.8% and what looms for a 2023 “contaminated” by political bids in an electoral-presidential year that encourage more fiscal and monetary imbalance. In recent history, the successive “platita plans” were not the exception, but the rule. The effort put into practice by the economic team to achieve the goals agreed at the time with the IMF may be diluted if the green light is given to the orders by items for the provinces and large suburban municipalities, the readjustment of tariffs is delayed or they are implemented new incentives to export while the official exchange rate is delayed.
Diagnosis. Quick of reflexes, the Vice Minister of Economy Gabriel Rubinstein used the networks to spread a statement giving his point of view on the reasons for this inflationary rebound. “The macroeconomic fundamentals, basically fiscal, monetary and exchange policies, would be consistent with monthly inflation rates of 4% or less”, he shelled. In addition, he set his sights on the most unruly items during the first month of the year: “we have strong increases in: a) fruits and vegetables (due to seasonal and climatic factors), b) some regulated items (buses, gas, water, tobacco, cable, prepaid medicine, c) tourism services (for vacations)”, he stressed.
Is it just a seasonal phenomenon and everything will return to normal? In each month there are always items that rise more or less than the average. But there is always a substrate that puts a floor on inflation: the monetary issue. Fernando Marengochief economist BlackTORO Global Investments, affirms that there is no doubt that inflation is a medium-term monetary phenomenon, but when it is necessary to project inflation for the following month, it is necessary to consider the price of the goods that are exported and imported, the exchange rate, the gap, wages, margins and what about utilities. “If I increase the rates tomorrow, even if I don’t issue, the prices will go up,” he graphed.
Another recurring explanation is the lack of internal competition that would allow producers to set higher prices for their products. This is in line with the food distribution channels and with some items in which the importer stocks eliminated alternatives. For example, while the CPI increased 98.8 year-on-year, the Clothing and Footwear category did so by 120.6%.
While the degree of openness of the world economy was 57% (measured in foreign trade over GDP in 2021), for Argentina that figure was 33%.. Much less than the region (55%): for example, than Colombia (41%), Bolivia (59%) and even the champion of protectionism, Brazil (39%). The specialist Marcelo Elizondo points out that, although this measurement is incomplete today because it does not include some services typical of an economy in the digital age, it serves to reveal the effects of a closed economy in a much more globalized context.
beyond february. Already played the month of January, the eyes rest on the evolution of the CPI during the rest of the year. For the consultant eco go, the advance of inflation to the second week of February already projects 6.1% for the month and a little more (7.3%) in the case of Food and Beverages. “Meats suffered a significant rise (5.4%) for the second week in a row and continue to push the index upwards,” says its latest report. The case of meat is perhaps the most symptomatic. For a good part of last year it lagged behind the average and in the last quarter, the drought prompted farmers to liquidate more animals and with that the price remained stable or even fell. But the cycle came to an end in December and has been going up ever since.
C.amilo tiscorniaconsulting partner C&T Economic Advisors carried out by one of the most valued surveys in the market, projects that, given the behavior of the different factors, there is no reason to believe that inflation in 2023 will differ much from last year. “Although it is not easy to calculate the lag of monetary policy in its effect on prices, it is clear that the monetary issue is referential and it is giving us that M2 (currency plus sight deposits) is growing at a rate of 70% yoy But then comes the interaction with the demand for money -which in Argentina is very volatile- to determine the final inflationary effect over time”, explains the also professor of Monetary Policy at the UCA. Therefore, he assumes that, if there are no changes, it will be around that value.
In his opinion, in 2022 there were elements that strengthened the imbalances that were dragging on and that must be considered for the projection this year. The international inflation that boosted ours will not be present in 2023: the last record in the United States (January 2023) shows 0.5% and 6.5% year-on-year. The other factor is the exchange rate: during months of last year the Government managed to move it to 7% per month, then lowered it to 5.5%, although it is not known how much it will be able to sustain due to the low supply of foreign currency, aggravated by the decrease in exports of agricultural origin due to climatic effects. ANDRegarding the rates, this year the announced increases will come, but probably concentrated at the beginning of the year to cushion the electoral cost. And, finally, the vicious circle of the speculative movement of inflation expectations generated by the expected growth of the money supply and the exchange gap that also influences the bet for a greater devaluation and therefore with an impact on prices, ends up feeding back this dynamic.
Uncertainty. Above all, for Tiscornia a caveat must be made: what will happen in December? “If there is a change of political sign and in December itself some variables are adjusted (official exchange rate, tariffs, etc.) inflation will jump and the final account of 2023 would end up being recharged,” he anticipates. He is not the only one: most of the economists consulted risk forecasts only until November, opening the umbrella of uncertainty regarding the economic policy of an eventual new administration. For his part, Marengo maintains that since there is no clear anti-inflationary policy, it would not be logical to expect the inflation rate to drop or be reduced to 3% per month, while there are interest rates at 6 or 7% per month, tariffs are adjusted and with devaluations of 6 or 7% per month. “This combination is unsustainable” he concludes. The only certainty is, again, uncertainty.
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