The sharp slowdown in prices that has been occurring week after week led the Central Bank to define a new rate cut, without needing to wait for April inflation data to confirm this trend.
With this new reduction from 70% to 60%, the annual effective rate of monetary policy remained at 82% annually. In this way, the BCRA maintains negative returns and accelerates the process of liquefaction of liabilities. According to the Government’s estimates, the quasi-fiscal deficit is already at less than 5% of GDP for this reason and with this measure it will go down another notch.
This means that the blender continues to operate at full capacity, particularly to take pressure off the BCRA when it comes to remunerating the placements made by banks. As it is becoming less and less business for banks to place passive repos, we are now beginning to see a first reaction to go out and place mortgage loans, although it is possible that the supply of other lines such as personal loans will also grow.
The consulting firm Econviews revealed yesterday that for the second consecutive week it measured a slight drop in supermarket prices in Greater Buenos Aires, this case for the fourth week of April. The measurement showed a drop of 0.4% and the previous week deflation had been 0.3%. In this way, there were many prices that fell after a 1.2% increase that occurred in the second week of the month, which ended up being the most “spicy” in terms of inflation.
These data are in line with Alphacast’s measurement, which measured a reduction in core inflation of 0.8% in the last week of September. In addition, high frequency indicators indicated that the variation in core inflation was 0% throughout April.
At this point it is already a fact that inflation this month will be in the single digits, but it is possible that the core could even be below 5%. This variable is what the Central Office monitors to define the next steps with the interest rate, since it is a measurement that does not incorporate regulated (as is the case with rates) or seasonal (for example tourism) price movements. .
The sharp slowdown in prices is particularly noticeable in basic basket products but also in other items, for example books and construction materials, as well as clothing (beyond the increase in new season clothing).
Like Alphacast yesterday with “high frequency” inflation measurements, the consulting firm Econviews also measured deflation in supermarkets and for the second consecutive week. Of course, not everything is homogeneous: vegetables fell 5%, but in perfumery the weekly increase was 1.7%
The explanation for this behavior of prices has different aspects and all of them are understandable. On the one hand, the Government has been pursuing a policy of strong control of aggregates and especially of the monetary base, which has hardly increased since December. This implies a sharp drop in the amount of pesos in the hands of the public, more than 30% in just three months. Therefore, that phrase “there is no money” resonates strongly and is largely what contributes to the fact that there is no room to continue increasing.
On the other hand, the drop in sales also forces many sectors to lower prices. This is not always reflected in the shop window or on the shelf, but it is in the negotiations between suppliers and customers. The proximity of the end of the month and the need to make cash to pay salaries and bonuses also accelerates the drop in prices to sell more.
Another factor that is present in many sectors is that there was a strong increase in stocks in 2023, taking advantage of the possibility of importing with an exchange gap. But now, with the dollar still and inflation falling, maintaining that stock is no longer an asset but rather becomes an increasingly heavy burden, so it is logical that sales be accelerated through a price reduction.
