Hear
Luis Caputo and Javier Milei will be able to say, like soccer players, “today to enjoy and from tomorrow to think about what is to come.” It is that although the Economy managed to complete another month in which inflation showed a sharp drop compared to the previous month (4.2% vs. 8.8%) – the objective that the Government set after the December devaluation -, Future indices promise to be less forceful. It is the lowest since January 2022 (3.9%), but the next match will be played on July 12, when Indec releases June inflation.
The pruning of the consumer price index (CPI) by 20 percentage points, from 25.5% in December to 4.2% in May known today, took the Government six months; lower it from 4.2% to 2% monthly – in line with the devaluation rate set by the table (crawling peg)- could take as much or even more. For now, analysts participating in the Central Bank’s Market Expectations Survey (REM) estimated inflation for June and July, on average, at 5.5%. That is to say, that downward staircase that has been seen so far would be interrupted, or at least it would remain stable.
Although the projected numbers may end up being lower (in fact, for last month the consultants expected a CPI of 5.2%), the general estimate is that the indicators will be one step higher than in May. It wouldn’t be anything out of this world: inflation is not a linear phenomenon, butgiven that the Government imposed on itself the need to always show a CPI lower than the previous month, the data will be followed closely and with morbidity, ready to be used by politics for one side or the other.
But beyond any possible political speculation, analysts also see economic reasons to believe that From now on, the slowdown in prices will be more difficult and observed. For example, as Ieral, of the Mediterranean Foundation, considered in its latest report, “if June and July threatened an inflation rate higher than that of May, then The current interest rate of 3.3% and the slide of the exchange rate to 2% would be closely monitored by the market”.
Whatever the market does, they say at the Central Bank, “the rule of two” is untouchable no matter how many ask to abandon it, even if a friend of the house like former minister Domingo Cavallo advises it. “What is the argument why a devaluation would not have a pass through [traslado a precios] 100% immediate? How much do you earn by moving the exchange rate nominally versus the costs it entails? Is a salary high or low today in dollars? Surely lower than in 2018, when we were in crisis,” they say in the monetary entity. “We adore Mingo; He is an idol, but what is the alternative?
There is one thing certain: the Government won the theoretical battle against many of the economists with whom it argues daily.: Monthly inflation fell to single digits earlier than projected, in April, and not in June or July as most predicted last summer.
“We went from inflation that ran at 17,000% annually to 50%; “It is due to the tough stabilization program that we carry out,” the President congratulated himself yesterday at an event at the Libertad Foundation.
“We did think that inflation was going to go down, that’s why we stayed with the crawling peg Of 2%. Furthermore, we achieved this reduction by disclosing a lot of relative prices, such as food, rates, fuel, and the exchange rate,” said Caputo, for his part, in another meeting. Point for the minister, although the road forward is long.
Regulated prices have contributed to the marked slowdown in May, both due to the delay in adjustments to gas and electricity rates and the brake on prepaid increases. With the removal of June subsidies to middle and low sectors, and if progress is made in pending adjustments, such as in transportation, plus the release in July, again, of private medicine quotas, The next indices would see a greater rise in the regulated component, which contributes significantly to the general indicator. “Seasonal prices rose 7.2%; the core 3.7%, much less than expected, and the regulated 4.0%. That is why the economic team began to talk about a positive interest rate in real terms,” analyzes Jorge Vasconcelos, from Ieral, from the Mediterránea Foundation.
Another factor to monitor, of course, will be the evolution of free dollars, whose volatility sooner or later has an impact on prices. The size of the exchange gap will be key in devaluation expectations, which end up being reflected in prices, as was seen in 2023 and this year, at the beginning of the Libertarian government. The vagaries of politics can alter this sensitive variable at any time, for better or worse, as has been seen in recent weeks and hours.
Miguel Kiguel, an economist who has specialized in the study of inflationary processes, states that although there are purely monetary aspects that impact prices in the long term, In the short term there are factors that affect them regardless of the amount of money in circulation. “There is a realignment of relative prices, which is a process that tends to be long, because not all prices adjust at the same time, in which variables such as salaries, rates and inflation are momentarily out of phase with each other. It is the process that is coming, which has nothing to do with fiscal or monetary matters,” he explains. Hence, he believes that inflation will stabilize at around 5 or 6% monthly. “This 20-point drop is special; 25% monthly is a one-time effect; You will not release everything at once like in December, that is why inflation will no longer fall as much; Going down half a point costs blood, sweat and tears,” he warns. And he compares: “The United States went relatively easily from annual inflation of 8% to 4 or 3.5%, but now it is difficult for it to go from 3.5% to 2%.”
Within this complex process of price adjustment, and taking the components of inflation in the city of Buenos Aires, the Ieral also puts the magnifying glass on labor-intensive services to warn that they are far from converging to the exchange rate pattern of the 2%. In May they increased 7.8% against a general index of 4.4%. This includes items such as haircuts, plumbing, certain medical and household services. “That is why last month they recorded inflation of 5.8% in dollars,” explains Vasconcelos.
The last REM showed inflation projections that reach 4.5% until November. Will the Government be able to bring the figure to 2% by the end of the year? For the Mediterranean economist, “there is still a long way to go” to know and he prefers to focus on what may happen this month and next, in which he sees no signs of an additional slowdown in prices compared to what occurred in the last months.
“They said that inflation was not going to drop below 10%.” [mensual], now they say it will not go below 4.5%,” Caputo challenged this week. Place your bets.
