Inflation in the US: how does the data impact investments and the economy in Argentina?

The inflation data of around 4.9% is in line with what was expected by the market and with a leve low compared to the month of March. This shows that the monetary policy of the United States is having an impact, albeit slowly, in deflating prices and opens the question of what will happen to the rate: if the Federal Reserve (Fed) is going to continue raising it or not, it will which is important for the future of Argentina’s financial dynamics, since, as it is the dominant economy in the world, what happens in the northern country is central to local assets and investments.

“It has gone down a bit and that opens the door for a positive reaction for Argentina from the markets”, highlights the economist from Grupo Broda, Elena Alonso. And it is that, I could mark the start of a less aggressive monetary policy by the Fed and Alonso explains that “when the interest rate of world banks increases, a recessive trend is generated in the world economy because the capital goes to the assets of the United States Treasury.”

And, on the other hand, in the case of Argentina, there is upward pressure on local rates to contain money flows, which is combined with the fact that, as a supplier of food to other countries, its generates a recession in the world, there may be less demand.

Thus, as indicated by Jeremías Morlandi, director of Public Policies at the Center for Economic Studies Argentina XXI (CEEAXXI), the moderation of inflation in the United States “It is a consequence of the continuation of the rise in interest rates by the Federal Reserve” and everything would indicate that “the Hawkish path of the North American policy maker is going to stop and the rise in interest rates is going to come to a halt or, at least, less, is what the North American market expects”.

A Hinge Moment: What May Come

However, Juan Alra, Portfolio Manager of Southern Trust, indicates that “although we see a slight decrease in prices, we also see a resistance of prices to decrease more strongly”, so he considers that the FED should continue to monitor how the outlook continues. And, consequently, he argues that two scenarios can occur:

• The first is that inflation in the United States will continue to decline, which is likely to be accompanied by a drop in rates.
• The second would be that inflation does not continue to be contained and the Fed could intervene again.

This second scenario would “affect Argentina as an emerging country in the ease of accessing credit”, says Alra, and points out that this is a similar scenario to the one in which we have been immersed up to now.

Meanwhile, a proposal like the first “would be positive for emerging countries (and, consequently, for Argentina), since more capital would be willing to invest in risky assets and could provide relief.”

And, in turn, on the economic rather than financial side, it indicates that the end of rate hikes and inflation stabilization could be reflected in an expansion of the economy, that could be channeled via the demand for commodities and be favorable for exporting countries, such as ours.

A fact that opens doubts

The truth is that, in the current context, the financial analyst Federico Izaguirre considers that “the data that was known this Wednesday discourages what investors are waiting forthat the Federal Reserve (FED) when finding a “peak” or ceiling of this data appeases this long cycle of increases in the reference rate “.

And the big problem, as stated by the analysts consulted, is that the rise in this monetary tool not only cools the United States economy with the aim of curbing the escalation of inflation, but also has consequences in emerging markets, so , it could be that the international context, far from becoming friendlier for Argentina in the coming months, becomes more complex.

But Morlandi opens a door in this sense by pointing out that it should not be ruled out that, “in the medium term, the reference interest rates for the dollar are lower than they are currentlywhich could provide a more favorable scenario than was expected a priori with a more contractive Fed”.