“The inflationary acceleration of June and July establishes a turning point with respect to the trajectory of income registered until May”, noted a FIDE report, adding: “We hope that the renegotiation clauses established in the joint agreements of the registered sector will work as a reinsurance to address the income objective. Nevertheless, the pace of income recomposition could slow down in the private sector and remain somewhat below inflation for the non-registered and social security sectors. This will be a factor that will tend to slow down the rate of growth in consumption for the remainder of the year”.
In this scenario, when analyzing what may happen to wages in the coming months, Nicholas Zeolla, chief economist of FIDE, told Ámbito: “There are two opposing forces. On the one hand, that wages beat inflation is a commitment of the Government’s electoral contractis present in the expectations of its electoral base, and it is a condition for consumption to continue to recover and thereby sustain the dynamism of the activity”.
“Secondly, it is also true that the margins to grow by boosting demand are severely limited by the lack of foreign exchange”, maintained the economist, who projected that throughout the year “wages should, at least, match inflation”.
Inflation and a disparate impact on income
According to the REM of the BCRA, July inflation accelerated to 7.5% and is forecast to reach 90.2% annually in December. “An inflation of these characteristics threatens the purchasing power of householdsbut not everyone has the possibility of covering themselves in the same way from price increases”, he told Ámbito santiago manukianEcolatina economist.
“Currently there are unions whose parity barely allowed them to obtain a salary 40% higher than a year ago and others in which that number reaches 130%. In this context of increases, revisions and quarterly parities, no one is capable of consistently beating inflation, at the same time that nobody suffers continuously. They all come up and zigzag on price developments,” added Manoukian.
It is that, as explained by the economist, when inflation breaks the previous dynamic and goes up a notch, the agreements naturally shorten. “If wages adjust, on average, with inflation, there will be no significant losses in general purchasing power, but this is achieved at the cost of giving inertia to the inflationary process.making it difficult to reduce future inflation and, above all, leaving unprotected those who do not have the tools to cover themselves from the constant increase in prices”, he stressed.
“The series of wages and inflation grow almost together, At the same time, retirees, AUH recipients and unregistered wage earners lose purchasing power very markedly.. The first seven months of the year were the worst in the series for these groups, which at the same time make up the bulk of the base of the pyramid. Wages that follow inflation, perpetuating it in the process, and a sharp drop in real income in the most vulnerable sectors, are two closely related events,” the analyst stressed.
This situation is transferred, somehow to consumption. Although, as Manoukian analyzed, it has an impact that has been heterogeneous: “Within the framework of a favorable incentive scheme (exchange rate trap, persistently high exchange rate gap, negative real rates), sales of durable goods and replacement of capital goods, On the one hand, together with tourism and gastronomy driven by ‘revenge consumption’, a real salary of the formal workers in recovery and a ‘flight to consumption’ have been leading the demand. The main limit here is mainly imposed by the restriction on imports as a result of the meager level of BCRA reserves.. On the other hand, mass consumption has been showing greater weakness, which would increase in the second part of 2022 as a result of a greater impact of inflation and the rise in rates on income.
Source: Ambito
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