The inflation measured in dollars It is a phenomenon inherent to the Argentine economyreinvigorated in the current circumstances and therefore frequent theme among the common citizens. It is that the inflationary inertiaespecially in December and January, collided with a reverse force: maintaining the crawling peg at 2% of the official dollar (decided after the strong devaluation) and a disparate behavior of different types of financial changes which place it only 7% above the level at which they were in the government of Alberto Fernández.
But what is the “inflation in dollars”. According to Juan Telecheadirector of ITE and author of the book Inflation! Why can’t Argentina get rid of it?the inflation in dollars has two components: on the one hand, price increases, i.e. local inflation; but, on the other, the value of the dollar against the peso. What is happening right now is that the CPI is running well above the depreciation of the pesoor as it is widely known, the rise of the dollar.
“Therefore the combination of these two elementsthe inflation added to the lowering of the dollar, makes them products become even more expensive in dollarsand that’s basically the phenomenon that is happening today“, explained Telechea. And the numbers confirm it: between December and February accumulated inflation was 71.3% (in December it was 25.5%, in January 20.6% and in February 13.2%) but compared to the financial exchange rates (specifically the CCL) it rose only 7.2% in the Milei era.
“Paradoxically, these months there was no reaction on the part of the financial exchange rate, which is the one most used as a reference. That dollar has been systematically reduced. And in fact this dollar was one of the big losers during these 3 months because prices increased sharply in domestic currencybut in terms of Dollars Instead of accompanying that inflation, The value was significantly reduced.”Telechea explained.
Inflation in dollars: the reasons
At the beginning of Javier Milei’s Government the prices were “cheap” in dollars due to the strong devaluation of the official exchange rate. This is how he explained it Camilo Tiscorniadirector of C&T Economic Advisors: “In December when The exchange rate shot up 118% but inflation was 25.5%, there was a drop in internal costs in dollars, then That month there was a reduction in dollars“.
But in the following months the situation changed: the dollar moved very slowly while inflation ran and then the inflation in dollars. As the economist explained Federico Glusteinwhile the devaluation was 54% (and continued with a depreciation of 2% monthly) inflation was 70%with increases of more than 100% in some cases.
Now, it is worth asking What would have to happen so that there is no inflation in dollars. “If we had an inflation of 2% monthly which is the pace at which moves the official exchange ratewe would not have inflation in dollars because inflation, that is, internal prices, would increase 2%, then the increase would be exactly offset,” Tiscornia explained.
“In our country,” Glustein explained, “inflation in dollars is different from what can occur in other countries, because it depends on several factors such as devaluation, inflation in pesos and the exchange ratein addition to certain local costs in a closed and uncompetitive market.
Inflation in dollars: what to expect in the coming months
Inflation in pesos for 2024 could be 210%, with a devaluation rate of 140% annually, so there could be inflation in dollars greater than 30%Glustein warned, and predicted that, in a scenario where the exchange rate stabilizes, Double-digit dollar inflation could continue in the coming months. Likewise, he said there could be an increase in salaries measured in dollars but with an increase in prices at par in that currency.
For Tiscorniafor its part, the key question It is whether starting from the devaluation of December and with the inflation in foreign currency that occurred these months, Is Argentina expensive or cheap? “In addition to trying to answer that, we have to ask ourselves how the situation moves forward, because if the official dollar continues to move at 2% per month but inflation drops, let’s assume that at 6% per month, all those months there will be inflation in dollars“, said.
“I believe that today we are still at an average level, in a reasonable level of dollar costs. We are not given away by chance nor are we as cheap as we were in December, but we are not as expensive as in the worst moments of Cristina or Alberto,” added the economist and closed: “We are not in a comfortable situation due to the difference between inflation and the exchange rate that’s why I think At some point the official dollar will start to move faster“.
Source: Ambito
