The problems to control inflation, according to analysts
What are those stimuli? According to the economist María Castiglioni, director of CyT Asesores Económicos, one of the problems that the Government has to curb inflation is that “It has been implementing already used recipes that did not work in the pastsuch as price controls and some specific programs, which have proven to have little impact, as well as rate freezes”.
He also observes that “today, there is an additional problem, which is that there is less demand for pesos, which affects the local monetary dynamics in a context in which the Government does not finance itself with direct issuance, but does so with indirect through the differentiated dollar programs”. The economist warns that this alters devaluation expectations, which are not a minor factor in inflationary dynamics, as well as credibility.
In a similar line, Buteler believes that a big problem that the Government has to control inflation, despite the fact that it takes measures in this regard, is that it does not fully apply them. “Some of them go in the right direction, such as moderating the deficit, which has been falling, such as setting positive real rates, but the problem is that emission is not controlled”, he raises.
He cautions that the programs he implements, such as the soybean dollar, which was applied in December for the last time, produce a very strong emission. “It was at a time when there is usually a lot of demand for money, but when that demand begins to drop, the pesos remain in the market and that causes the issuance to accelerate and the alternative exchange rate to react,” he says.
The difficulties of price agreements
Thus, for Santiago Manoukian, Ecolatina economist, the problem is that “there are a series of factors that have been putting pressure on inflationary inertia and they make it very difficult to disarm.” One of them is the impact of the drought on the production of grains, which is transferred to the prices of some foods, just as it happens with the adjustment of the price of the bovine ascenda, which influences how much the consumer for the meat.
It also considers that the crawling-peg currency (the daily microdevaluations of the official dollar carried out by the Central Bank) adds more fuel to inflation because it is an expectation of devaluation, controlled, it is true, but real and expected.
“We’re seeing the effect of those variables already in some February data,” Manoukian says. In fact, the Ecolatina CPI for Greater Buenos Aires climbed 6.6% monthly in the second month of the year (+105.5% yoy), accumulating an increase of 13.4% for the year.
What’s next: will the government be able to control inflation?
Regarding expectations about whether the government will be able to control inflation or not, at Ecolatina “they believe that the current trend will continue forward”. Manoukian explains that this is due, in part, to the difficulty faced by management in implementing price programs.
“On the one hand, the degree of fragmentation of the producers makes it very difficult for the Government to control the dynamics of meat prices and it is to be expected that the sector will want to continue increasing profitability”, he comments.
And, on the other hand, he argues that, in terms of Fair PricesAlthough a very high set of agreements has been achieved, he expects that they will begin to unravel in the coming months because the ‘carrot’ that Massa offers the participants in exchange is better access to dollars for imports in the official exchange market and , as it becomes more difficult to meet the reserve goal, he anticipates that it will have greater difficulties to comply with that agreement.
For Castiglioni, for his part, the problem is that they do not come applying correct recipes and considers that “inflation should be fought with valid tools, such as reducing the monetary issue and the fiscal deficit”. These are elements that the Government proposes as part of its strategy and are valid, but it indicates that “it does not comply with them because monetary issue force with the implementation of some policies, such as the soybean dollar programs”.
Along the same lines, Manoukian believes that “appealing to partial and gradual measures, as they have been doing”, it will be difficult to control inflation in a short time. And he criticizes that “there is no robust stabilization plan that is solid and credible for economic agents and with political support.” Likewise, he expects that the government’s next steps to reduce the fiscal deficit, such as adjusting tariffs and the exchange rate, could accelerate inflation in the short term, which will make the objective more difficult.
Thus, although, as Buteler points out, some of the current measures are in the right direction, as assessed by analysts: how to moderate the deficit, which has been falling, how to set positive real rates, which is what the Central Bank has done ( BCRA); There are other problems that undermine the objective, such as the scarcity of dollars, the difficulty in controlling prices and, for him, the main obstacle is issuance.
“The Treasury needs new resources, but they don’t have to come from the BCRA,” he says. Thus, he proposes that a viable policy to stimulate the liquidation of the field in the future would be to reduce withholdings, since this would not impact inflation. “It is true that it would influence collection, but it would preserve reserves, which are an important element”, he concludes.