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Economy will accumulate between 10 and 15 points of repressed inflation with the postponement of increases

Economy will accumulate between 10 and 15 points of repressed inflation with the postponement of increases

Some analysts consider that the Argentina should return to a situation similar to that at the end of Mauricio Macri’s government, when more than 75% of the rate covered the costs of public services.

According to data from the society of Cohen Argentina stock market, to return to that coverage point, another 10 or 15 points would have to be added to the current level of annual inflation.

Inflation: projections for the second semester

Jerónimo Montalvo, strategist at Cohen Argentina, pointed out in a talk for investors that, “For the second semester, different challenges arise, for which gradualism would be required, calibration or fine tuning of economic policy.”

“On the subject of prices, If the dynamics are maintained and there is no incidence of regulated, it is likely that there will be a positive number in May,” said Montalvo.

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The market analyst highlighted that, during the government of Alberto Fernández, ““regulated prices were the most backward” and then, after the arrival of Javier Milei “They are the ones who are at the forefront.”

The benchmark is July 2019, when rates almost covered costs. To return to that situation, they would be between 10 and 15 points of general inflation”explained the economist.

At that moment, The price ratio of regulated products was 1.17 points with respect to the general CPI and, in April 2024, the ratio is 0.9, despite the brutal correction of the last 5 months.

Montalvo, specified that, for to recompose what is missing, there would be an inflation of 1.5 points per month but that “you don’t have to do it all together, but, if you postpone it, it is for the future.”

The evolution of core inflation

What you have to keep in mind for the rest of the year is then the evolution of core inflation, which in April was 6.3%, below the general index. So far this year, general inflation has grown 65%, while regulated services 114.4%, says INDEC. The core in the first quarter rose 57%.

When you look at the data from Cohen Argentina, of the 8.8% in April, 3 points were housing, water, electricity and others, which are the components of regulated prices. In it case of food, which is the most important component of the CPI weighing between 25% and 30%, It went from 8 points in December to 1.4 in April.

That is what would explain the lowers inflation to around 5%, although with the exception that the Government decided to stop the missing rate increases.

Luis Caputo pointed out this week at the Annual Congress of the Argentine Institute of Finance Executives (IAEF) that, by postponing the rate increase, the Government intends to “give a break to the middle class and, in addition, contribute to the disinflation process.”

“In terms of rates, they are classified as N1, N2 and N3 and businesses. We had updated N1, which are those with high incomes and businesses. N2 and N3 by law could not do more than what we had done. We did not want to update N1 again and businesses without touching N2 and N3 that are paying 5% of the rate,” he anticipated.

Doubts about the effect of the rise of the dollar

The spike in quotes of the blue dollar and financial options were soon reflected in food prices, that in the third week of May had an increase of 1.8%the highest in the last two months, in what many fear is the beginning of a reversal of the declining trend that began in mid-January.

In any case, the survey released by the consulting firm Labor Capital and Growth (LCG) reports a new slowdown in monthly food inflation, with a week-on-week drop of 2 tenths, which left the level at 1.6%. However, unlike what has been happening in recent weeks, the end-to-end measurement exceeded the monthly average by standing at 1.9%.

Due to the uneven evolution of prices in the different sections of May, For the first time, a paradoxical situation arose: weekly inflation was higher than monthly.

So far in May, food inflation accumulates 3% and, as long as the freezing of public service rates is maintained, the official purpose of closing the month with a Consumer Price Index (CPI) around 5% does not seem to be at risk.

Source: Ambito

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