With an inflation rate that still remains in double monthly digits after the peak of 25.5% last December, it is expected that the Consumer Price Index (CPI) this year surpass minus 200%.
This high inflation dynamic is driven by the price release and the carryover effect of Luis Caputo’s December devaluation.
However, Milei’s main objective is the rapid elimination of inflation, which today maintains a downward path due to the sharp drop in consumption tied to the loss of purchasing power.
Morgan Stanley: inflation in the coming months according to the international bank
In this framework, the Morgan Stanley projections reveals that Argentina will close 2025 with a 31.6% inflation after 207.7% for this year.
In its latest report on Argentina, the investment bank Morgan Stanley highlighted “a“considerable improvement in fiscal and foreign accounts”although he was more “prudent” regarding the possibility that Milei can apply his extensive reform program due to the need for consensus with other political spaces in Congress.
In contrast to the decline in inflation, the report also referred to the generalized adjustment that the Government is carrying out, which directly impacts income.
In this regard, the bank’s economists consider that “The adjustment can be very early“, with a cut of around 3.8% of GDP in 2024, which would leave Argentina “with a primary surplus of 0.8% of GDP”, although a critical social situation if income is not restored.
Inflation: Milei’s anchors to stop inflation
The adjustment puts pressure on a deepening recession that serves as an anchor for inflation, which is why Morgan Stanley predicted a 207% rise in the CPI by 2024 and 31% by 2025, although with a drop in the activity level of -3.3% this year along with a recovery of 3.6% the following year.
Despite this, there are still “important risks” in the path of lower inflation that could make it “more persistent.” As an example, they point outthe importance of the liquidation of the coarse harvest of agriculture that will begin soon and if exporters consider the exchange rate convenient for this operation, a key point to rebuild reserves.
The report also refers to a second anchor: the official exchange rate that is updated today with a monthly correction of only 2%, far behind inflation.
According to the entity, currently “monetary policy is probably adequate to anchor inflation expectations” since the low crawling peg regulates the transfer to official prices.
However, considering Milei’s dollarization plans, Morgan Stanley believes that this scheme will have to be modified in pursuit of a opening of the exchange rate and, then, a change in the monetary system in which currency competition is enabled.
An eventual bimonetarism “will require a competitive conversion rate and positive real rates so that the peso can compete,” the report states in closing.
Inflation: HSBC’s forecast
Meanwhile, the HSBC bank also shared a similar, although slightly higher, forecast, 40%. According to the British entity, the A strong recession generated by falling incomes will result in “earlier disinflation.”
Now they foresee a GDP contraction of 4.0% in 2024 after a decrease of 1.6% in 2023, cutting its previous projection that the contraction would be 2.0% this year after closing at -1.0% in 2023. If agriculture were excludedMeanwhile, they said that the contraction and fall in product this year would reach 5.5%.
The bank’s analysts, on the other hand, They raised their forecast for 2025 expansion, which they now place at 3.0%, 0.5 percentage points above the previous forecast. They expressed that this means that Milei can stabilize the economy and place it on the path of sustainable growth. “However, the risks of application remain high,” they warned.
Inflation: JPMorgan’s forecast
JP Morgan’s base scenario for Argentina in 2024 includes a recomposition of net reserves by US$ 10,000 million, a primary fiscal result that closes at zero this year and a slowdown in inflation. “The path to the baseline is fraught with risks, but the president seems determined,” the report highlights.
Regarding future perspectives, they state: “There are many political challenges and execution risksbut there seems to be a path towards a political agreement along with increased IMF assistance aimed at lifting capital controls; This could give more advantages to the rebound.”
Source: Ambito
