With the latest May data from Argentina’s CPI published by the National Institute of Statistics and Censuses of Argentina (Indec), it can be assured that annual inflation in the River Plate country has peaked and that a period of disinflation is now beginning. This means that Milei’s policies of pushing the economy to the limit to correct prices are bearing fruit.
Monthly inflation will never return to double digits, at least for the remainder of the year, and annual inflation will remain high, but with the curve downward until closing the year at 115%, according to the estimates provided to elEconomista.es by the Argentine consulting firm. Abeceb. These data were calculated after learning that in the fifth month of the year, monthly inflation was extremely surprising when it fell from 8.8% in April to 4.2% last month, its lowest level in two years. This left an annual figure of 276.4%. Analysts expected a monthly rate of around 5% and an annual rate of around 280%.
The Argentine Ministry of Economy itself, led by Luis Caputo, confirmed that disinflation “continues its course.”
The truth is that, without taking these latest data into account, international organizations and consensus predicted that prices in Argentina would continue to decline throughout this year. The International Monetary Fund (IMF) predicted a rate of 150% in December of this year in its spring forecasts. For its part, the OECD predicted at the beginning of May that the year will end slightly above 200%.
Regarding the market consensus, Bloomberg’s forecasts, which bring together the predictions of the main private macroeconomic analysts, last Friday placed inflation at 244% for 2024, to later be cut deeply to 78.9% in 2025.
Analysts assure that the slowdown in inflation is occurring due to the enormous drop in domestic demand due to the monetary policy of the Central Bank of the Argentine Republic (BCRA) of having monetary devaluation below the rate of inflation.
At the same time, salaries are also not evolving at the same pace as inflation. According to the latest known data (May 12), payrolls grew by 10.3% in March and fell behind the monthly increase in inflation in the third month of the year (11%). If taken in annual terms, the loss of purchasing power of Argentine workers remained at 170%.
For the year as a whole, salaries have accumulated a loss of 5.9% compared to inflation, while since Milei has been in the Casa Rosada, the drop in purchasing power has deepened even further.
All this is part of what the libertarian called “the last bad thing” that must be endured in order to make the country’s economy recover. But the libertarian is pushing the economy to the limit and, with it, the citizens.
Since the beginning of the year when he began his crusade to cut down the State, the far-right cabinet dedicated itself to cutting public spending at a stroke. What affected citizens the most was the elimination of the bonus on products of what they call “the basic basket”, as well as the elimination of subsidies for transportation and energy. The latter accounted for the Argentine public coffers about 10 billion dollars of annual public spending.
While the Milei Administration is expected to tout the positive results of its economic shock therapy program, economists view this pace of price decline as something of a “mirage” in the short term and anticipate that it may be can stagnate. For the moment, Abeceb predicts that next month, with the arrival of cold weather (Argentina is in the southern hemisphere and winter is now beginning there), prices will increase and the monthly figure is 5.9%a small increase due to the increase in energy prices.
Although inflation expectations have decreased significantly this year, analysts surveyed by BCRA in May do not expect monthly price increases below 5% until September. Even for November, monthly inflation stands at 4.5%, according to the Bloomberg consensus. For their part, Abeceb predicts that in July they will return to the 4% path and from there the monthly data will continue to grow less and less until closing at 2% in the month of December. The Government’s objective is to close the year with a monthly inflation figure of around 4%.
