The ‘chainsaw’ of Javier Milei, president of Argentina, has pruned and curtailed inflation much faster than expected (at the cost of also damaging the economy, it must be said). Milei’s plan continues to show important progress as far as inflation is concerned. It is true that the economy is suffering a notable recession, but the cuts in public spending and the reforms in the central bank (reduction and reorganization of liabilities) are causing a kind of miracle with inflation, which has moderated to 4 .2% in the fifth month of the year. In this way, consumer prices stood at 4.2% compared to April (inflation was 8.8%), continuing on the path of deceleration with respect to the monthly rate of 25.5%, which was recorded last December, and the rate it presented was 11% in March. Here you can consult the official inflation data with all the information.
“That is the most important thing. The decline is essential for the recovery, that generates a normality that you have not seen in Argentina for a long time,” said the Minister of Economy, Luis Caputo. This important drop in inflation is published hours after Milei achieved an important economic victory with the approval of the Law of Bases and Starting Points for the Freedom of Argentines, better known as the Bases Law.
Furthermore, this inflation figure is even more relevant, since just a few months ago it was considered practically impossible to reduce Argentine monthly inflation below 6% due to structural factors. However, the end of monetary emission to finance the public deficit and spending cuts are helping to drain the monetary base and lower prices much faster than anticipated.
The consumer price index (CPI) in Argentina stood at 276.4% year-on-year in May (JP Morgan still expected annual inflation of 279%), as reported this Thursday by the National Institute of Statistics and Censuses (Indec), which confirmed that it continues to be the highest in the world. In fact, the consumer price index (CPI) did not show a monthly variation below double digits since last October (8.3%).
On the other hand, the Argentine stock market and bonds reacted with intense increases this Thursday after the approval of the Bases Law and the Fiscal Package in the National Senate. Debt securities appreciated intensely, reducing the interest that Argentina has to pay to obtain financing, while Shares of Argentine companies listed on Wall Street rose up to 10% led by the banking sector. The country risk suddenly fell by 62 basis points to 1,420 points basics.
Argentina’s inflation in detail
The official report highlighted that goods had a positive variation of 3.9% in May in Argentina compared to April. While services rose by 5%, data that amount to 279.1% and 270.3%, respectively, in the year-on-year comparison.
Among the increases recorded last month, those in Communication (8.2%) stand out due to increases in telephone and internet rates, followed by Education (7.6%) after increases in school fees and Alcoholic beverages and tobacco (6.7%), due to increases in cigarette prices
Food inflation
Food and non-alcoholic beverages grew 4.8% compared to April and 266.3% year-on-year. According to the official report, Argentina’s inflation accumulated an increase of 71.9% in the first five months of the year. Consumer prices increased by 211.4% in Argentina in 2023. The highest rate since the hyperinflation of 1989-1990 and with a notable acceleration compared to the 94.8% verified in 2022.
It’s not all good news. From JP Morgan they warn that the pace of accumulation of international reserves has begun to slow down: “The fact that 20% of export flows are being used to cover the needs of the financial currency market (around 6.2 billion dollars between December and April according to our estimates) has limited the ability to accumulate reserves more quickly,” says the American bank report.
“However, the pace of BCRA reserve accumulation has slowed. Despite the type of normalization in agricultural exports, the Bank of Argentina’s aggressive rate cuts over the last month and delays in the approval of the fiscal package caused an increase in the exchange gap of around 45% on June 4,” warn the experts at the American investment bank.
