NewsLatin AmericaArgentina's inflation advances towards 100% year-on-year

Argentina’s inflation advances towards 100% year-on-year

A butcher updates the price of his products in a market in Buenos Aires, in January 2022.Enrique Garcia Medina (EFE)

The world has a serious problem with inflation, but Argentina has much more. Prices rose 6.3% in October compared to September; They accumulate 88% year-on-year and 76.6% since January. The forecasts for December are dangerously close to 100% for the first time in 30 years, according to data from the National Institute of Statistics and Censuses (Indec) released this Tuesday, despite the efforts of the Government of Alberto Fernandez to avoid them. One piece of data is particularly worrying: the October figure marks the end of the downward curve that inflation had started in July, when it reached 7.4%.

The increases have been especially cruel with the costs of housing, electricity, water and gas, as a result of the reduction of energy subsidies and the consequent rise in the rates of public services paid by households. Food, the sector that worries the Government the most due to its incidence among the poorest, remained just below the average for the month, 6.2%. Out of the average, the impact was especially hard on vegetables and fruits, with a rise of 9%.

The president, Alberto Fernandez, announced last March that he was starting a “war against inflation.” He has not fared well on the front lines. The CPI for February had risen 4.7% and that of the following month climbed to 6.7%. The defeat cost the then Minister of Economy, Martin Guzman, the architect of the agreement that Argentina signed at the beginning of this year with the International Monetary Fund (IMF) to postpone payments for 44,000 million dollars. In August, and in the midst of a bitter dispute between Fernandez and his vice president, Cristina Kirchner, over the course of the economy, Sergio Massa, the third leg of the Peronist coalition in government, took over as minister. Massa arrived with the powers of a super-minister -that is, the permission of Kirchnerism- to make a harsh fiscal adjustment, stop the issuance of money, add reserves to the Central Bank and, above all, lower inflation, as required by the IMF.

Massa has become a juggler. While he tries to contain spending, he allocates extraordinary funds to social aid and negotiates with the export sector so that they settle with the Central Bank the dollars they receive from their sales abroad. The underlying problem is the lack of international reserves, close to zero, a drought that limits the official tools to contain the depreciation of the peso. It has been, until now, like pouring water into a wicker basket that he fills with leak-proof patches. Efforts are being made to contain a sudden devaluation that will further trigger the CPI and poverty rates, today above 35%. The weapons chosen by Massa have been varied. Some orthodox, like positive interest rates; other extraordinary

This week, a new list of maximum prices for more than 1,800 products went into effect. The intention is to keep them at bay for at least four months, and then it will be seen. Gabriel Rubinstein, deputy finance minister, was once a critic of controlled prices, but now that he is in the trenches he has decided to back them. In a talk before finance executives, he said that it is about saving consumption. “The 100% inflation that we are having now is a kind of overshoot, an inertia. We are in a vicious circle. When that is the case, you have incentives to do consumer policy,” she said.

The flip side of rising prices is currency depreciation. Rubinstein ruled out a violent devaluation, due to the social impact it would have. “We are hand in hand every day to meet the goals of the budget and with the Fund. Nobody wants to finance the State and it cannot be done without an agreement on prices and wages, ”he said. However, there is a devaluation in fact that can hardly be disguised. Argentina today has more than ten different exchange rates, where the official one is fixed at a rate of 168 pesos for each dollar. This change is used to buy foreign currency to settle imports or fix prices of commodities as fuels in the domestic market. For the rest of mortals there is a long list of contributions that double the one set by the Government: soy, card, Qatar, savings, MEP, crypto or wholesale. The producers put pressure on the Casa Rosada to have its own exchange rate to settle foreign currency, attentive to the official desperation to add reserves to the Central Bank.

The scenario for the war against inflation is also not the best. In October 2023, Argentina elects a new president and it is not a good time to make fiscal adjustments or cut social assistance, essential for millions of families who cannot make ends meet with their income. Political tensions complicate any solution.

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