“This also happens because there is more and more uncertainty, which lowers the demand for pesos. If the demand for a product falls, for example, but the supply remains, there will also be a loss of purchasing power. Here it gets more complicated because not only does demand fall, but supply increases. And that is going to be reflected in the foreign exchange market,” he added.
The economist highlighted another factor that adds to the “combo” that has made the alternative exchange rates rise in recent days: “Because of the uncertainty, people are not only going to escape the peso, but also every asset that is local. This is also done through the foreign exchange market.. Conclusion: this also pushes parallel dollars higher. The uncertainty factor is one of the factors that is causing these exchange rates to grow.”
“But, in turn, uncertainty also makes people invest and consume less: if you invest and consume less, you save, and you save in foreign currency. With which this obviously makes the economy tend to grow less moving forward,” Abram added.
Regarding the rise in financial exchange rates and inflation, Abram stressed that “it is also true that to the extent that the dollar is reflecting a loss of purchasing power of the peso, which is immediate, this is anticipating that in the future all goods and services will reflect this loss of value of our currency in their price”. “It is being anticipated that there will be more inflation going forward,” he remarked.
“This future inflation will affect consumption and economic activity. Because when we talk about inflation, what we are talking about is a reduction in the purchasing power of the peso, of wages. With which, this loss of purchasing power impoverishes people, that the poorer they are, the less they consume. And it is also true that the more inflation there is, the more uncertainty is generated. With which, there is a vicious circle that affects, because the demand for pesos falls and the loss of purchasing power is enhanced, and also because more uncertainty means less consumption and less investment. And that also affects the level of activity. We are entering a very dangerous vicious circle,” Abram concluded.
Source: Ambito
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