General Perón patented a phrase of overwhelming validity: “While prices go up the elevator, wages go up the stairs”. The race, generally unequal, between inflation and salaries is already a classic in recent economic history. The figures gave a respite from the scourge of salaries in recent years and especially in 2023, when inflation rose one step. With the last breath, the October CPI showed 8.3%, a number that seems low compared to the previous two (12.4% and 12.7%) but still projects 160% annual inflation. This dynamic aggravated the erosion of the income of workers, retirees and the self-employed.
In race. Unlike previous months, in October there was an increase in some items that had been lagging, such as Communications (+12.7%) and Home Equipment (+10.7%) while others continued to top the increases: Clothing clothing (+11%) and Restaurants (+8.8%). Far from raising suspicions about the good professional practice of INDEC, The result of the CPI reflects a slowdown in prices after the escalation started with the devaluation of August 14, which triggered the indicators in that month and in September.. Many of the variables that had been “stepped on” previously, had their escape valve in those days and were later put on hold: for some reason, the exchange rate was fixed, at least in its “official” version at $350 until November 15 .
The same thing happened with fuel, but as it turned out, Tetris couldn’t hold up and the worst news arrived at the wrong time: the shortage at service stations. Although a miscalculation was pointed out at the time due to the combined effect of the XXL holiday and the general elections, the truth is that another piece of information that the economic team watches closely also weighs: the level of reserves, in clear decline almost from the beginning of the management of Alberto Fernández.
Camilo Tiscornia, director of C&T Economic Advisorsthe inflation projection for November is very open because it will depend on what happens between now and the end of the month. “In the first week of November there was a fairly strong increase compared to October, in the second there was some moderation, but when compared against the same week in October it is already above 10%,” underlines. Among the factors that could raise the inflationary bar are a more rapid unfreezing of the exchange rate, a movement in tariffs or the reconfiguration of prices that were already agreed for different products. In this regard, he gives as background what happened in August after the PASO that led to many changes two weeks later. “Unfortunately, it cannot be ruled out that this happens again,” he closes.
For his part, the economist Alberto Cavalloprofessor at Harvard Business School who leads the HBS Pricing Lab, through its own online measurement, indicates that inflation has regained momentum. “The trend of the price index suggests an annualized inflation of 266% since the last structural break on October 8, while 10 days ago it was 233%”, comments. These differences could be read from the perspective of expectations about what will happen after the holiday on Monday, November 20, when the first of the unknowns has been cleared up: who will govern from December 10. With so many prices agreed, frozen or simply closely monitored, the reference to the next economic policy will be key because as has already been demonstrated, it is impossible to found the long-awaited stability with the anchoring of a single variable. Here too, everything has to do with everything.
Income slide. At the other end of the equation, while inflation squatted waiting for news, the income of workers, the self-employed and retirees had a year to die for and in the best of cases they managed to tie the fight. Salvador VitelliHead of Research Romano Group observes, according to data from the consulting firm and following the INDEC methodology, that the weighted average of all these incomes suffered a real decrease of 3% in the last interannual measurement (September 2023) and with a probable rebound in October “thanks” to the momentary slowdown in prices. Vitelli points out an additional difficulty for all segments: as inflation increases and even when the income, the adjustment is always about the past, so real income grows, which evaporates only due to inflationary erosion.
The other big difference is that the behavior of income in each type of labor market is very unequal: registered private, public and unregistered. “In the case of those not registered, their current situation is at levels below the crisis of exiting convertibility. In the rest of the salaries, they have remained relatively against inflation, registered private, public employment, this mainly caused by a strong indexation, always with its lag of course, but with fairly stable levels in these times,” he explains.
If we look at the unregistered salary, it fell 18% in real terms in the interannual measurement in September, while public employment rose 3%. A staggering difference that deepens the poverty gap. As Tiscornia adds about the latest INDEC data for September, compared to July of this same year, with two “inflation bombs on top” the real salary fell 5.2% on average with this breakdown: -7.2% in the sector public, -3.2% in the registered private and -8% in unregistered.
Passive, abstain. Finally, in the case of retirees and pensioners, dependence on official decisions subjects them to vulnerability only a little better than the informal ones. Esteban Domecqpresident of Invecq, shows that the pension mobility formula implemented in December 2020, “which removed the inflationary component from the calculation, ended up being a blender for retirees.” Designed for an economy with “civilized” inflation, the results given the dynamics acquired by prices were disastrous for purchasing power. “With the 20.8% increase for December, announced with great fanfare, but much lower than the 35% inflation rate this quarter, retirements will end 2023 with an average drop compared to 2019 of: 23.3% for the “minimum credit, 21.2% for medium credit and 29.5% for maximum credit: a loss of purchasing power of between 20% and 30% in four years”, analyze. The intention to compensate with “bonuses” for the real drop in benefits only served to somewhat cushion the minimum assets: their purchasing power will end the year with a fall of 2.2% below the 2019 level.
Perhaps the only positive effect for the Treasury of this sequence is the savings in public spending on the item that takes the most from the National Budget (more than 50% of total spending are retirements and pensions). Jorge Colinaeconomist IDESA points out that it is the only variable on which spending was adjusted. “In 2017, retirement spending amounted to 8% of GDP with an inflation rate of 27%; in 2022, the average annual inflation rate was 72% and retirement spending fell to 6.3% of GDP.”, he highlights. In that period, average retirements fell a real 32% since September 2017 and fell 12% in the case of minimum salaries with the bonus and 38% without it. “It is very difficult to sustain a stabilization plan if pension expenditures recover that 1.7% of GDP that was liquidated in the last six years. The only way to prevent social security from being a factor of macroeconomic destabilization, which leads to high inflation rates, is by ordering the system,” he concludes. Perhaps, once the other race is over, the electoral one, there will be room for the patches to stop kicking out solutions for the long term, which, inexorably, always arrives.
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