Disinflation: the two obstacles that the Government faces in overcoming the “last mile”

Some private consulting firms They assure that in August the Government would have achieved break through the 4% inflation floor monthly, despite the fact that the minister Luis Caputo pointed out a couple of weeks ago that last month’s results will be similar to those of July, when marked the lowest level of the year with 4%.

The data, somewhat contradictory, would indicate that the Government is beginning to face the so-called “last mile” problem, according to the Mediterranean Foundation.

That is, after having attacked levels of inflation that reached 25% in December 2023, The plan generated a sharp drop in the rate of price increases, but would now begin to find greater difficulties in going to lower levels.

It is also necessary to clarify that inflations of more than half a point per month could be considered high and unusual, when compared to the situation in most countries in the world.

Luis Caputo would only now begin to combat inflation

Or, to put it another way, the team of Luis Caputo would only now begin to combat inflationWhat happened during the first nine months of Javier Milei’s government was the result of the own measures necessary to balance macroeconomic variables. There was an increase in prices that are now falling, but remain one point above the monthly levels of 2021, when inflation was already a serious problem.

The Mediterranean Foundation stresses that “in the stabilization plans, In general, the ‘last mile’ is the most complicated, That said, without detracting from the achievement of having lowered the monthly rate from 25% to 4%.”

“It is possible that in August could breach the 4% monthly threshold, and if that happens it will be because the ‘core inflation’ has dropped another step, “compared to 3.7/3.8% in the previous three months,” the entity explains in its latest report.

Inflation: the two factors that complicate the “last mile”

The paper notes that “even so, Two factors complicate the journey of the ‘last mile’. “On the one hand, the so-called ‘inertial inflation’, which is evident in the slide in the price of labor-intensive services and, on the other hand, the lack of consistency in dealing with a transitional monetary-exchange rate regime, not definitive (including the stocks),” says the Mediterranean Foundation.

In this regard, the work states that “we will have to see How much of this can be replaced by the ‘disinflationary’ impact of the 10-point reduction in the PAIS tax rate.”

The report argues that “in essence, the Phase 2 of the economic planlaunched in mid-July, is achieving lower, in the short term, expectations of devaluation and inflation (within a still relatively high base), but sin order to clear the medium-term horizon.”