Inflation breaks world records
In the United States, the world’s leading power, prices rose 6.2% in annual terms in October, a record since 1990. Following the same trend, inflation reached almost 30-year highs in Germany and Spain, to put only two examples of a situation that affects a large part of European countries.
In China, on the other hand, the price increases were reflected in the wholesale index, which grew at its highest rate since 1995, mainly due to energy problems and difficulties in the global supply chain.
In a report published this week on the subject, the consulting firm Equilibra argued that this inflationary acceleration has several causes. Among them he remarked:
- The “Laxity” of monetary policy, which reduced rates interest by raising the price of commodities,
- A consumption pattern more directed towards goods than towards services but with downward inflexibility in the price of the latter. “The unexpected demand for goods exceeded production capacity, including logistics and recently energy,” deepened Lorenzo Sigaut Gravina, Director of Macroeconomic Analysis at Equilibra.
- a wage growth driven by strong growth in labor demand, in the face of a more rigid supply.
The two main Latin American economies are not safe from this scourge either. Brazil suffered its highest monthly inflation since 2002 in October and the year-on-year rate climbed to 10.7%. At the same time, the deputy governor of the Mexican central bank has already warned that his country is facing the largest price increases in 20 years.
How much and how does it impact Argentina?
In Argentina the situation is different since inflation levels are among the highest in the world for more than a decade. However, the international situation adds even more fuel to the fire.
Sigaut Gravina argued that the international factor “plays a role” in the inflationary dynamics of Argentina, although its explanatory power is “limited”. According to a report by Equilibra carried out in the middle of this year, between October 2020 and April 2021, the performance of international prices contributed at least 4 additional points to an inflation that was 30.9% during that period. From the consulting firm they anticipated that by the end of the year they will carry out this exercise again to determine the influence of the external context on the acceleration of inflation in recent months.
For his part, the director of Anker Latin America, Federico Furiase, He maintained in dialogue with this media that, beyond the world context, the inflation problem in Argentina has to do “with the accumulated macroeconomic imbalances, the lack of a credible anchoring of forward expectations and an inertia already launched”.
According to the estimates of the consulting firms and financial entities that participated in the last Market Expectations Survey (REM), prices would accumulate an average increase of 50.3% in all of 2021, which would mean the second highest mark since 1991, behind the data from 2019.
Despite the large increases in items such as clothing or food, it is worth noting that the global energy crisis did not have the same impact in the country as in other parts of the world. The Gas Plan It seems to have had great relevance in decoupling the local price from the international one, and at the same time raising the levels of production at the domestic level.
Sigaut Gravina welcomed the stimulus to local gas production in this context of high international prices, due to the savings in foreign exchange that this implies, taking into account that Argentina is a net importer of this hydrocarbon.
As stated by the Government, the State saved US $ 1,000 million considering that the price of Liquefied Natural Gas increased from US $ 3 / US $ 4 per million BTU to the area of US $ 30 during the last year.
The problem of rates and commodities
Faced with the acceleration in prices, the central banks of the region have already begun to raise their interest rates. Such were the cases of countries like Brazil, Mexico, Chile, Peru and Uruguay. Meanwhile, in the US, the Federal Reserve (Fed) for the moment only reduced its monetary stimulus program through the purchase of bonds and in the market they estimate that the rate hikes will begin in the middle of next year.
“That the BCRA has not raised the rate despite the inflationary acceleration in Argentina is a problem to anchor expectations. Today the anti-inflationary policy of the monetary authority is sterilization (absorption of pesos) via Leliqs and the delay in rates and official exchange rate. But those anchors lose efficiency; the stock of remunerated liabilities generates an endogenous monetary emission factor, the increase in spending on energy subsidies implies a higher emission and the anchor of the nominal exchange rate with a gap of 100% and u $ s3.5 billion of net reserves each time it has less effect, “explained Furiase.
In that sense, the economist said that the entity led by Miguel Ángel Pesce “should raise the rate” although he clarified that this decision implies assuming costs “since it would generate a greater account of remunerated liabilities and would compete with the Ministry of Finance to see who he keeps the pesos from the banks. “
In this regard, Sigaut Gravina assured that the rate hike in Argentina becomes relevant in comparison with the exchange rate since it is “key” to contain the dollar and prevent prices from rising in this way.
In the context of the rate hike, Equilibra estimates a slowdown in world economic growth for 2022 and a deterioration in the terms of trade for Argentina. “The main risk for the country is that, if the decline in the price of commodities continues, the terms of trade will deteriorate and less foreign currency will enter”, detailed Sigaut Gravina.
In summary, although the rise in prices in the world explains a small part of inflation in Argentina, the truth is that it adds an additional difficulty when moving towards a stabilization plan. Additionally, the response of the nation states to this problem could cool down the recovery processes and deteriorate the country’s position in foreign trade.
Source From: Ambito
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