Greater rate adjustment will add pressure and the CPI moves further away from single digits

Greater rate adjustment will add pressure and the CPI moves further away from single digits

In September 2023, the Core CPI had accumulated an increase of 108.1%, while the regulated ones had advanced 88.1%. In October the figures were 126.5% vs 99.5%; in November, 170.3% vs 130.8%; in December, 229.4% vs 164.9% and in January 275.9% vs 213.1%. The gap widened in favor of the Core CPI: 21, 27, 39.9, 64.5 and 62.8 points, respectively.

In February, food inflation will be close to 11%, according to some private consulting firms that do this type of monitoring. With this, according to the President Javier Milei, it would be a “great deal” if the general CPI ends the second month of the year at around 15%. The problem now is the dynamics of regulated prices.

Subsidies, a kind of “Terminator”

It’s like a vicious circle. If the cut in aid for rates is partial, what remains pending is regenerated again as a kind of “Terminator” due to the effect of inflation. Until July 2023, the evolution of core inflation and that of regulated prices will be remained more or less the same. But From August the gap widened until December and in January it seemed to stop.

“The dynamics of regulated prices in relation to core inflation: the gap widened in the last two months,” the economist points out in a report. Nadín Argañarazfrom the Argentine Institute of Fiscal Analysis (IARAF).

Argañaraz maintains that “The decline in spending on subsidies requires that the gap change sign in the coming months”. “In the last month of January, the year-on-year growth of regulated prices was on average 62.8 percentage points lower than the latter (Regulated CPI 213.1% and Core CPI 275.9%),” indicates the professional.

In the Relative Price Monitor, the IARAF states that “in order to consolidate a reduction in subsidies in real terms, the gap has to be positive.” “In this way, the regulated ones will recover relative price. With a negative gap, they will continue to lose it. Without a gap, the relative low price will remain. It is quite a challenge that is coming in the coming months,” warns the study.

Inflation: how relative prices evolve

The IARAF report explains that “what has become more expensive relatively in relation to the rest, in the last six years, has been non-alcoholic foods and beverages.” “In effect, an average consumer today has to spend 22.3% more on other goods and services than they did to buy the same foods and non-alcoholic beverages in December 2017,” explains the report.

If 2017 is taken as the base year, where all consumption items start at 100 points, lFood and beverages rose to 122.3 points in January 2024, while public services fell to 46 points. Which indicates that due to the effect of inflation, in relative terms with the rest of the consumption basket, services They were 76.3 points cheaper with respect to food.

Correcting this gap can be extremely painful for the population if it is not accompanied by an improvement in income. Some economists consider that in Argentina food should be cheap while services more expensive, always in a context of salary restructuring.

Transportation subsidies increased in January

According to a report from the Argentine Association of Budget and Public Financial Administration (ASAP)the total of subsidies to economic sectors, public companies and trust funds reached $99,836 million last month, 456.9% more than the same month last year, that is, 57.2% more at constant values.

But the evolution was far from being homogeneous, largely because it was an atypical month in terms of transfers, since both In January 2023, as in the same month of this year, there was no subsidy for the energy sector, the main destination of the transfers that the national State grants in this area.


If you look at what ASAP encompasses as “other sectors” outside of energy and transportation, Only $590 million were distributed, a nominal cut of 91.1% and a real cut of 97.5%, with an absolute cut for Correo Argentino, the main company in the sector.

As for Transportation is concerned, surely the cuts will begin to become visible from February, the month in which the series of rate increases began, both for services of national jurisdiction and the transfers that in that sense were granted to the provinces and municipalities of the Interior.

The sector received $99,246 million, 99.41% of the total, with a nominal interannual increase of 776.7% and a real increase of 147.5%an evolution that constituted an alarm signal in official offices and influenced the rate increase for the current month.

“Faster disinflation is at risk”

Regarding this topic, the economist Luis Secco warns that “We are behind on a fundamental issue, which is tariff adjustments.” “Only now have the transport increases been announced in the AMBA, in the case of electricity only in what refers to what the AMBA distributors receive but not the price of wholesale energy, and the gas audience is scheduled for the end of this month,” he indicated.

The professional maintained that “the February price index benefits from these postponements of rate increases,” which means that “it is likely that during the month of May we will have some increases in force.”

“Above all In April the corrections will be more fully noticed of prices that have not been corrected,” anticipated Secco, who said that “many regulated prices are only now beginning to increase.”

Therefore, he concluded that “the idea of ​​reaching single-digit inflation may take a while because there are still planned jumps in some key prices of the economy ahead that were not made”.

“This delay puts the fiscal adjustment at risk because it means that subsidies do not fall as quickly, that the Government during January did not pay practically any subsidies and did not transfer the resources to those who have to pay them. “It seems to me that it puts a bit of risk of faster disinflation,” stated the economist.

Source: Ambito

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