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'Self-built' inflation: the seven elements that prove otherwise

2023-01-24T18:51:09.341Z

While President Alberto Fernández says that the price rise "is in people's heads", the data insists on contradicting him.



President Alberto Fernández's affirmation that

inflation is "self

-constructed " contrasts with the numbers that show that the sustained jump in prices is the consequence of a "sick economy" -as defined by Minister Sergio Massa.

These are the factors that push the price index to close to 100% per year.

Fiscal deficit

Argentina's inflationary escalation began in 2005, when the increase in public spending began to complicate the fiscal accounts until plunging them into a permanent deficit that does not have genuine financing.

The rise in spending has been covered with monetary issue.

increased tax pressure and new debt

.


monetary issue

The Central Bank machine became the main source of financing for the public sector.

In 2022 alone, the issue dumped an excess of

6.2 trillion pesos

on the economy .

With the currency devaluing daily, nobody wants those pesos, which leads the Central to raise rates to make them more attractive and at the same time floods the market with bills, which ends up putting pressure on prices.

The dollar journey

When Alberto Fernández took office, the official dollar was trading at $60. Today the wholesaler reaches 184 pesos.

He jumped 206% below inflation for the period, which reached 300%.

In order to correct this exchange rate delay in recent months, the Central Bank

accelerated the rate of devaluation

to bring it into line with the monthly evolution of prices.

Thus, with a monthly correction of around 6%, it sets a floor for inflation.


currency gap

The

government's attempt to use the dollar as an inflationary anchor and make it run behind prices led to a range of dollars that has gained strength in recent years.

This means that

the exchange rate gap exceeds 106%

in the case of the blue dollar and reaches 97% in financial dollars.

The width of the gap arouses the idea that at some point there will be a correction that will bring the price of the official dollar closer to that of the alternatives.

And that means that the prices are set taking into account the price of the blue and the cash with liquid.


Expenditure and debt indexation

Much of public spending is adjusted for inflation.

The rise in prices affects the increase in pensions and the public and private parities are set based on past inflation.

The same occurs with other spending items and debt: bonds and instruments that adjust for CER are the most demanded by investors, who are increasingly asking for a higher rate to stay in pesos and not go to dollars.


The shortage of foreign exchange

With debt markets closed, Argentina faces a permanent foreign exchange deficit.

Not even record exports are enough to generate the dollars the country needs.

Faced with this, the Government's solution was to block imports and multiply the stocks so that it is increasingly difficult -and more expensive- for Argentines to get dollars to save or to travel abroad.

In December 2019, whoever wanted to travel outside the country paid $63 per dollar.

Today it pays $383,

a jump of 508%.


electoral uncertainty

In election years, Argentines tend to turn to the dollar to guard against uncertainty.

This element combined with the attacks of the ruling party against the Supreme Court and the confrontations with the opposition in Congress put more pressure on prices and fuel the inflationary inertia that the country has been dragging for almost two decades.

AQ​


look also

The 'Gaucho', the currency that Raúl Alfonsín and the Brazilians dreamed of in the 80s

AFIP taxes: those who sell on platforms such as Mercado Libre will pay 8% VAT

Source: clarin

All business articles on 2023-01-24

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