While the government continues to celebrate 4.2 percent inflation for the month of May in a scenario of total cooling of the economy and postponement of rate increases, analysts warn about the future: on the one hand, because inflation will return to accelerate, but the activity level does not recover.
The last indication of a scenario that has been seen week after week was given by the Argentine Confederation of Medium Enterprises (CAME) with the results of sales for Father’s Day 2024, which registered a drop of 10.2 percent compared to those of last year. “There were interest-free installments in many businesses and good discounts for cash payments, but people were still measured,” said CAME and added that “a highlight of the date were collective purchases, among several family members, to save ”.
The category that registered the largest drop was Cosmetics and Perfumery (-37.4 percent). While the only increase occurred in Clothing (+11.1 percent), “explained by the low base of comparison, the existing stock levels that expose, among other issues, that the prices of the sector are below the average of the economy,” the study stated.
In the same line of consumption, according to data from the consulting firm Scentia, Sales fell 13.8 percent in April compared to the same month of the previous year. At that time, the data marked an acceleration of the collapse that had been 3.8 percent in January, 4.1 percent in February and 7.5 percent in March. For May, the consulting firm that measures mass consumption estimates a smaller decrease year-on-year than what the sector reports, between 8 percent and 9 percent.
Last week, the World Bank worsened its projection of the Argentine economy and estimated that this year it will fall 3.5 percent, making it the country with the greatest contraction of activity in Latin America. Regarding inflation in Argentina, the report noted that “it is expected to remain high this year, although declining at a rapid pace.”
With depression it is not enough
Despite the fact that the cooling of consumption and, therefore, of production and investment, serves the government to show results in one of its obsessions that are not justified by the means, a low figure in the inflation rate; Economic analysts assure that 4.2 percent resembles an inflation floor, which could accelerate by June.
“It is quite likely that retail inflation in June will show a “rebound” close to 6 percent m/m as a result of rate increases (gas and electricity), transportation and the return of increases in prepaid medicine,” they warn from Delphos Investment. Looking ahead, the consulting firm highlighted the announcement made last week by the Government that at the end of this month it will present a monetary programming framework to the IMF to further reduce uncertainty by providing more information on the projected behavior of monetary variables. “This implies greater predictability of monetary policy, which will continue to be conducted in a flexible, prudent and pragmatic manner.” “The most forceful reaction was observed in the “hard dollar” debt, which rose more than 10% in the week, recovering the drop from the previous week. The PAIS risk (RP) fell around 200 points in the week to 1,381 points, the lowest value since the end of May,” explained Delphos Investment.
The figure coincides with the estimates of the city’s consulting firms, which place June inflation between 5 and 6 percent.
Among the variables that could fuel it are the new scheme for removing subsidies in services for low- and middle-income users (N3 and N2 in rate segmentation). In addition, subsidized consumption limits are shortened, which, according to the formula that the Ministry of Energy is still studying, will have increases according to the CPI. At the end of April, the Minister of Economy Luis Caputo introduced increases in distribution and transportation costs, electricity and gas rates, and fuel taxes to avoid around two percentage points in the calculation of the general price level. .
Another aspect that will heat up the statistics will be private health, which after the comings and goings to roll back the values of the installments and the return of that surplus collected in 12 installments, the Government will release the prepaid companies to make new adjustments.
