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When and how do you curb inflation, which is already at 1% per day?

2023-12-16T18:59:15.442Z

Highlights: When and how do you curb inflation, which is already at 1% per day?. Massa's devaluation went to prices in less than 60 days. Milei expects the dollar to be semi-fixed for a while, but the remarks don't stop. Manuel Adorni suggested that "it is good to understand that today inflation runs at 3,678% per year, this 1% daily inflation leaves us immersed in a hyperinflation that we are trying to avoid"


Massa's devaluation went to prices in less than 60 days. Milei expects the dollar to be semi-fixed for a while, but the remarks don't stop.


Manuel Adorni suggested that "it is good to understand that today inflation runs at 3,678% per year, this 1% daily inflation leaves us immersed in a hyperinflation that we are trying to avoid".

Thus, the presidential spokesperson recharged the ink on what the population has been experiencing this December in terms of price stampede before and after the announcement of the devaluation on Wednesday 13.

So far this month, the price of YPF gasoline has risen 67 percent, meat 50 percent, flour 80 percent, and supermarkets said they are receiving lists of products in the family basket with increases of between 30 and 40 percent that added to the escalation that had been going on since mid-November.

A widespread postulate among economists holds that in order to curb inflation, you first have to have a lot of inflation and these days this second part is being noticed with virulence. And how and when will it be stopped?

With the inauguration of President Javier Milei, the liberalization of prices is dizzying and businessmen and merchants accelerated the increases and at the same time, in the midst of uncertainty, stopped sales to revalue their stocks.

The 54% devaluation brought the export dollar, after withholdings and with the 80% official formula and 20% counted with settlement, to $856 coming from $366.

Imports become more expensive due to a new country tax that goes from 7.5% to 17.5% that adds to the devaluation and determines a dollar $940.

The exchange rate jump is very strong and the variable to monitor is to what extent and at what speed it is transferred to food prices.

The inflationary run that was unleashed with the 22.5% devaluation applied by the then minister Sergio Massa and that, in the absence of a political plan or plan, was fully transferred to prices within 60 days, is still fresh.

The situation is different now as it is a brand new government with political backing that is taking its first steps towards what is believed to be a stabilization plan.

In the transfer of the exchange rate jump to prices, it will also be necessary to compute, and in a decisive way, the weight of the reduction in subsidies to the rates of electricity, gas and transport services that will start in January.

Devaluation, price liberalization, and a policy of eliminating subsidies are the first steps that emerge, according to the vision of Minister Luis Caputo, in the attempt to stabilize inflation by betting on two pillars of containment: the elimination of the fiscal deficit and a fixed exchange rate.

The objective of eliminating the deficit is clearly a priority for President Milei, to the point that, in order to achieve it, he left two of his original postulates by the wayside.

The objective of achieving fiscal savings of 5.4% of GDP will not only come from reducing spending, but 40% (2.2% of GDP) will be provided by tax increases.

A Milei that makes positions more flexible with respect to the postulates of the electoral campaign in order to achieve possible objectives is also reflected in exchange rate matters.

The Milei of the campaign had said that it would not set a price for the dollar, but now, by setting it at $800 with a monthly update of 2% it makes it clear that a fixed exchange rate will be, in the short term, the main instrument to try to stabilize prices.

With the devaluation and liberalization of prices, the short-term liquefaction of pensions and wages is very important and raises the question of whether recession and the fall in sales and activity will be the only possible way to curb inflation.

We will have to wait for the fiscal adjustment measures to take effect in the attempt to contain inflation but, as Minister Caputo pointed out, this will take time and, until then, the semi-fixed dollar appears as an anchor, exposed to an upward trend in prices that takes everything away.

Just as he resorted to raising taxes to tighten public accounts, will Milei resort to some heterodox tactic to contain the rise in prices and moderate the sharp fall in the purchasing power of wages and pensions?

Or will you bet that the drop in consumption and the drop in sales will act as effective ways to contain inflation?

Source: clarin

All business articles on 2023-12-16

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