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Milei forecast inflation of between 20 and 40% over the next three months

2023-12-11T01:07:41.345Z

Highlights: Milei forecast inflation of between 20 and 40% over the next three months. He said that the outgoing government planted a "hyper" in December, increases in tolls, prepaid and telephony are coming. Devaluation and tariffs will also have an impact. The main inflationary "anchor" of the libertarian plan would be an unprecedented spending cut of between 5 and 6 points to reach fiscal balance in 2024."We don't know what the exchange rate adjustment and tariffs are going to be," said Santiago Manoukian, chief economist at Ecolatina.


He said that the outgoing government planted a "hyper" in December, increases in tolls, prepaid and telephony are coming. Devaluation and tariffs will also have an impact


Javier Milei assumed the presidency with a gloomy and disturbing prognosis. He anticipated that inflation will be between 20 and 40% per month, a result for which he blamed the outgoing administration, although he acknowledged that there will be a "hard" adjustment, with stagflation and greater poverty.

"Inflation today is already traveling between 20 and 40% per month for months between December and February," he said, and warned: "The outgoing government has left us with a hyper and it is our top priority to avoid such a catastrophe that would bring poverty above 90%." "There is no alternative solution to adjustment," he added.

From the esplanade of Congress, Milei linked inflation to a consolidated fiscal deficit of 17% of GDP and a monetary policy that, as he explained, acts with a lag of between 18 and 24 months. "Having issued for 20 points of GDP is not free," he said.

"The Rodrigazo multiplied the rate of inflation by 6 times, so something similar would be by 12 times and given that it comes to 300% we could go to an annual rate of 3,600%," he said in reference to the 1975 plan that included a sharp devaluation of the peso, increases in tariffs and fuel, and caps on wage increases.

In this context, he referred to the remunerated liabilities of the Central Bank - the so-called debt of the Leliq - and stated that the situation is "worse" than the time of Raúl Alfonsín, since "in a very short time the issuance of money could quadruple and lead to 15,000% per year", a number that implies 52% per month. according to their calculations.

Strictly speaking, the inflationary jump has already begun to occur in recent days with increases in gasoline prices of up to 30% and queues at supermarkets to cover themselves, in the midst of the wave of remarks and the de facto abandonment of official price agreements.

For November, consultancies expect inflation of between 12 and 14% - the data will be known this week - while for December the private sector projects a floor of 20%.

"

If there is an immediate relative price adjustment in the event of a shock, we could be floating at 40% monthly inflation. We assume that it will not be so immediate and it will be a degree of gradualism, from 20 to 40%," explained Francisco Ritorto, an economist at ACM.

Milei warned on Sunday of "imbalances" in tariffs and the exchange rate gap, which reaches up to 165%. In that context, an initial devaluation is expected to bring the official exchange rate to a floor of $650. With that 68% jump, the question is how much the transfer to prices will be.

"Any devaluation is going to cause higher inflation, the issue is going to be the transfer and reliability of the plan, it does not necessarily have to transfer all inflation, it would be the objective of any stabilization plan, it depends on how much they devalue and how they do it," explained Sebastián Menescaldi, deputy partner at EcoGo.

Milei has its sights set on utility rates (electricity, gas, water), rent, transportation, health and food to a lesser extent. For December, increases are also planned in tolls (50 to 66%), work in private homes (10%), telephone, cable and internet (4.5%), prepaid (11.5%) and schools in the AMBA (11 to 22%).

The main inflationary "anchor" of the libertarian plan would be an unprecedented spending cut of between 5 and 6 points to reach fiscal balance in 2024. The new president said that the adjustment will fall on the State, but admitted that it will have an impact on the level of activity, employment, real wages and poverty, whose rate today is around 40%.

"We are expecting an inflationary acceleration because relative price adjustments are pending, we are starting to see it a little with the de-anchoring of price agreements. We don't know what the exchange rate adjustment and tariffs are going to be, corrections that are going to accelerate prices," said Santiago Manoukian, chief economist at Ecolatina.

Source: clarin

All business articles on 2023-12-11

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