In an economic scenario of high inflation, boosted by the 20% devaluation of the peso after the PASO, the Minister of Economy and candidate for president of the Unión por la Patria (UxP), Sergio Massa, announced a battery of measures that seek strengthen economic activity and income. However, to what extent they will impact in search of trying to achieve that objective.
How will the new measures impact the economy?
In this context, economists and market analysts agreed that the announced measures were taken “to alleviate the negative effects of inflation”, although they stressed that they could generate negative effects in the medium term such as an “inflation escalation”, since they feed a higher inflation expectations.
“Is a electoral strategywhich seeks to alleviate the devaluation that was made on August 15, trying with lump sums offset the impact on the pocket of the people that is being given through the price increase. This month is expected between 11 and 14% of inflation. It gives the feeling that the workers continue running behind the price increase,” he emphasized in dialogue with Ambitthe investment adviser Alexander Bianchi.
And he expanded: “With these measures they try to alleviate that devaluation and inflationbut they are a bit short. Although you also have to understand that a deficit stateSo that implies more emission“.
For his part, since EcoGo noted that “given the expected inflation, unfortunately, the effect that the extent is to equate the largest inflation expected, after unleashed prices who registered after the post STEP devaluation“.
In another order, the economist Elena Alonso argued that “these measures They are more retroactive than forward.in the sense that the erosion of the inflation in people’s pockets, it has caused them to have to take economic measures, which I think will not be enough, because they will also have an impact on prices, which will cause us to have that need for permanent help later on “.
Higher issuance and lower tax collection
The Economist Damian Gonzalez Farah he defined the measures as “Band-Aids applied in the midst of a large hemorrhage.”
Although the measures announced are to alleviate the effects of the inflation and the devaluationThey are also implemented by a Minister who is running for president, within the framework of an electoral campaign. However, the economist, despite the reasons for the announcement, stressed that “what is fundamental is the context” in which the new measures are given.
And he developed: “With a monetary issue which fluctuates between 38 and 40% year-on-year (around an entire monetary base every 2 years), the problem represented by the leliq and the interest rateif Massa aspires to succeed Alberto FernandezYou will need to think of a solution. To this is added the decreased tax collectionAs a result of the drought, only in terms of withholdings it went from around 9,973 million dollars in 2022 to 3,300 million dollars in 2023″.
“Everything expressed, in monetary terms, does not consider that the inflation is a multi-causal phenomenon and in this sense, in Argentina there are restrictions on the supply of goods and services, which come from the measures adopted regarding the importation of intermediate and/or final goods and services. We don’t even talk about the cost matrixthe infrastructure and the uncertainty generated by the outcome of the PASSED. I only took a few variables, which allow us to graph the trap in which the government finds itself,” he added.
“The latest measures (devaluation and maintenance of salaries, pensions and income) not only reduce the electoral chances of the ruling party, but could also generate a higher level of uncertainty and with it greater speed in redialing, accelerating the inflationary spiral. Monetarists also explain that in addition to the expansion of the monetary base by issuethe speed of money circulation is another factor that would lead to an increase in prices,” explained González Farah.
Impact on consumption and public spending
In that sense, Andres Reschini, of F2 Soluciones Financieras, affirmed that the current scenario is “very delicate” after the devaluation, which left the economy “without an anchor of expectations, with inflation estimates for August and September in double digits.”
“The higher consumption, the higher the deficit. This, which ends up being monetized in an already very delicate scenario, will have even more pressure on prices, among which are included the exchange rates, which can be very dangerous,” he added.
And he concluded: “Without a doubt it is a risky move in the face of the presidential election and the market will try to cover itself.”
Road to higher inflation: what about the pesos?
On the other hand, the economist Salvador Vitelli He assured that the measures that were announced to improve income “in fiscal terms represent half a point of GDP, entering a winding terrain, where the demand for money is quite low.”
“All of this leads to a higher issue monetarya greater amount of pesos, which is precisely what the market does not want,” he assured, explaining that the market They are buying shares, Cedears, bonds, among other assets, because they don’t want the pesos.
And he added: “The demand for money begins to show a strong weakness and this can generate a inflationary spiralization quite large.” “The phenomena of hyperinflation They occur when the demand for pesos becomes zero and has nothing to do with the supply,” he warned.