After the decision of Government After stopping the recomposition of rates, doubts arose in the markets about how much “repressed inflation” will remain in the future, something that will have to be resolved at some point during the second half of the year.
Some analysts consider that Argentina should return to a situation similar to that at the end of Mauricio Macri’s government, when more than 75% of the rate covered the costs of public services.
According to data from the Cohen Argentina brokerage company, to return to that coverage point, another 10 or 15 points would have to be added to the current annual inflation level.
Inflation: projections for the second semester
Jerónimo Montalvo, strategist at Cohen Argentina, pointed out in a talk for investors that, “for the second semester, different challenges arise, for which gradualism, calibration or fine tuning of economic policy would be required.”
“On the issue of prices, if the dynamics are maintained and there is no incidence of regulation, it is likely that there will be a positive number in May,” said Montalvo.
The market analyst highlighted that, during Alberto Fernández’s government, “the regulated prices were the most backward” and that later, since the arrival of Javier Milei “they are the ones that are at the forefront.”
“The benchmark is July 2019, when rates almost covered costs. To return to that situation, there would be between 10 and 15 points of general inflation left,” the economist explained.
At that time, the price ratio of regulated products was 1.17 points with respect to the general CPI and, in April 2024, the ratio is 0.9, despite the brutal correction of the last 5 months.
Montalvo specified that, to make up for what is missing, there would be an inflation of 1.5 points per month but that “it does not have to be done all together, but, if it is postponed, it is for the future.”
The evolution of core inflation
What must be taken into account for the remainder of the year is then the evolution of core inflation, which in April was 6.3%, below the general index. So far this year, general inflation has grown 65%, while regulated services have grown 114.4%, says INDEC. The core in the first quarter rose 57%.
When you look at the data from Cohen Argentina, of the 8.8% in April, 3 points were from housing, water, electricity and others, which are the components of regulated prices. In the case of food, which is the most important component of the CPI weighing between 25% and 30%, it went from 8 points in December to 1.4 in April.
That is what would explain the drop in inflation to around 5%, although with the exception that the Government decided to stop the missing rate increases.
Luis Caputo pointed out this week at the Annual Congress of the Argentine Institute of Finance Executives (IAEF) that, by postponing the rate increase, the Government intends to “give a break to the middle class and, in addition, contribute to the disinflation process.”
“In terms of rates, they are classified as N1, N2 and N3 and businesses. We had updated N1, which are those with high incomes and businesses. N2 and N3 by law could not do more than what we had done. We did not want to update N1 and businesses without touching N2 and N3 that are paying 5% of the rate,” he anticipated.
Doubts about the effect of the rise of the dollar
The surge in the prices of the blue dollar and financial options was soon reflected in food prices, which in the third week of May rose 1.8%, the highest in the last two months, as far as which many fear is the beginning of a reversal of the downward trend that began in mid-January.
In any case, the survey released by the consulting firm Labor Capital and Growth (LCG) shows a new slowdown in monthly food inflation, with a week-on-week drop of 2 tenths, which left the level at 1.6%. . However, unlike what has been happening in recent weeks, the end-to-end measurement exceeded the monthly average by standing at 1.9%.
Due to the uneven evolution of prices in the different sections of May, for the first time, a paradoxical situation arose: weekly inflation was higher than monthly inflation.
So far in May, food inflation has accumulated 3% and, as long as the freezing of public service rates is maintained, the official intention of closing the month with a Consumer Price Index (CPI) around at 5% he doesn’t seem to take risks.
