After 94.8% inflation in 2022, expectations for this year do not budge.
The latest survey of the Central Bank among consultants places them at 96.9%.
There are several reasons why the price index will approach 100% this year.
Fiscal deficit
The Argentine economy has been dragging double-digit inflation since 2006. The escalation coincided with the end of the fiscal surplus and the increase in public spending.
The economist Camilo Tiscornia, from the consultancy C&T, states that "the main determinant of inflation is the fiscal situation. This includes the issue of the deficit, the indebtedness in pesos and the risk of refinancing the debt in pesos that forces a quite important monetary issue".
Issue
For Martín Vauthier, director of the Anker consultancy, these high levels of inflation originate in the monetary field.
"The deterioration of the Central Bank's balance sheet is explained by the sharp increase in the fiscal deficit during the pandemic. This deficit is financed to a large extent with issuance and all those pesos were absorbed by the Central Bank in remunerated liabilities. Today the Central has the equivalent to two additional monetary bases that are accruing interest and that in turn are a source of issuance every month".
Expectations
The rise in prices is fed back with rising expectations.
For Sebastián Menescaldi, from EcoGo, "in recent times a large component of inflation has been expectations. Given a deteriorating balance sheet of the Central Bank, uncertainty about what the value of the dollar will be generates a remarking of prices." .
Inertia
A good part of public spending -salaries, retirements, social benefits- is adjusted for past inflation.
And the same is true of private sector prices.
The LCG consultancy carries out its own price measurement and details that all the prices surveyed are adjusted every month and a half.
Economist Juan Manuel Telechea said in radio statements that inflation in Argentina "
is a chronic problem.
As the inflation process becomes higher, the behavior of people, companies and unions adapt to that environment and they are behaviors that are already very difficult to eradicate".
Drought
Due to the effect of the drought, the wheat harvest fell 50%. Less production will put pressure on prices and not only in the case of flour and derivatives.
For GMA Capital, the slowdown in the rise in food prices in recent months was a consequence of the drop in meat prices, which account for around 8% of the total basket.
"As a result of the drought, the supply of meat increased considerably in the last two months of the year, and consequently, its price fell in real terms."
But although meat was essential for inflation not to close with triple digits in 2022, "the anticipated increase in supply will bring more than one headache for the future."
Dollar
For Tiscornia, "the rate of movement of the exchange rate is a key element for prices."
In 2022, the dollar lagged behind, although in the last quarter of the year it accelerated until it ended up moving above inflation in December.
"Putting a 6% monthly update rate for the official dollar gives prices a guideline, which makes it difficult for them to move below that level."
rates
Last year rates rose 55% on average and have lagged behind inflation in the last decade.
For this year, a series of adjustments have already been committed that will impact prices: energy, public services, transportation, prepaid, schools are some of the items that plan increases.
Wages
For this year, the Government intends that the joint ventures close at around 60%.
With the economy practically stagnant, analysts see little chance of wages putting pressure on prices and purchasing power rebuilding.
For Vauthier, "real wages are today at the lowest levels of 2019 and that puts a ceiling on inflation in the short term."
election year
Political tension surrounding the elections may add pressure to prices.
To this is added that the campaign could lead to an increase in public spending and the reactivation of a kind of "platita plan", as happened in the 2021 elections. More public spending adds uncertainty and complicates the deficit goals agreed with the IMF
.
Credibility
In order to lower inflation, it is essential that the government manages to convince the economic and social actors that it is committed to that goal.
In the midst of the electoral tussle and the cross accusations, credibility is a rare commodity.
Telechea points out that the Government "has to convince the unions and companies to stop looking back and instead look forward."
But he warned that for this "it is not enough to show a three-month path of descent. It is not enough with isolated policies, the only way is to put together a plan."
AQ
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