During those first six months of 2024, The “honesty” of prices will have two moments. As detailed Hernan Letcherdirector of the Center for Argentine Political Economy (CEPA) to Ambitthat first moment includes the current period and the beginning of Javier Milei’s management “where some of the things that today the market, especially the food market, is carrying at a price are realized.”
The deregulation of the price of gasoline and energy, the elimination of Fair Prices and the wheat and oil trust, the repeal of the rental law and the liberation of prepaid prices and public services, These are some measures that could be taken at the beginning of the management.
In turn, Letcher points out that there will be a “second moment” where progress will be made in elimination of exchange controls. “There is going to be a significant exchange rate jump and I think it will have a second noticeable impact on inflation. This second moment is not defined when it will be,” says Letcher.
History indicates that the correction of price distortion in the economy will inevitably bring a high inflation that will impact at least the first six months of the year. To face this period, Milei will have to get all the dollars it can and generate a kind of “bridge” to the big harvest, either through international loans – which can come from the International Monetary Fund – or the harvest of the wheat where more than US$2,000 million is expected. It is worth remembering that the Central Bank has negative reserves, which means that expectations play a more predominant role.
The Economist Julian Zicari In conversation with this medium, he points out that this “honesty” of prices is going to be carried out with an inflationary inertia with a high inflation floor (remember that the CPI today travels between 8% and 12%). “The very high inflation is going to liquefy salaries, retirements, and social plans. No joint venture is going to beat 20-30% monthly inflation. “That is going to contract demand, consumption and activity,” Explain.
In this same line, Gabriel Caamanofrom Consultora Ledesma, states that it is likely that November inflation will be double digits but that of December could be the highest of the year, with or without exchange rate adjustment. January does not promise to be better. “One expects that most of the corrections will be made in the first semester, so inflation in the first semester will be high”he sentenced.
Now the questions that immediately arise are linked to how this correction will be carried out, how to anchor expectations and how long the shock will last.
In that sense, for Caamaño it will be key the total cut of the monetary issue. In that case, “it may be that the transfer to prices is not complete,” he says. At the same time, he points out that in an inflation as high as the current one, the correction of relative prices will be “differential.” That is to say, some prices that travel even above the parallel dollar will tend to adjust or not rise with the same speed. However, the blow will be felt the same.
Dollar: Shock or gradual exit from the exchange rate?
Although some economists maintain that the exchange rate correction will be in December, the latest statements by Javier Milei and his economic team with the arrival of Luis Caputothey ended up confirming his departure from the dollarization theory. The question now is whether finally The exit from the exchange rate will be a shock or if a more gradual solution is chosen.
In fact, today the market future dollar that operates in the Matba-Rófex moderated expectations for next month where the contract It traded below $800., which gives signs of a correction but not at an exit level from the stocks. In this line, A direct devaluation of 123.8% is expected for December and 156.8% for January compared to the current level.
In any case, the dollar does not seem to be the biggest concern. According to economist Julián Zicari, another of the unknowns that will begin to be resolved in the Government’s “doing” is “how do they plan to endure it in political and social terms” and until then they have to “cross the political and social desert.”
The financial world is asking the same question. The street, Congress and the market will play the cards so that the plan works beyond theory. “Inflation will surely rise a lot before going down,” warns 1816 in his latest report.
For now, the market is optimistic. The rest is a challenge.
Source: Ambito
