The worst inflation in April in 22 years is worrying

The worst inflation in April in 22 years is worrying

The plan and the minister could enter the danger zone, given the social unsustainability of the fiscal adjustment.

On the other hand, if the social situation supports it, “necropolis inflation” could decrease in May and June. But it must be understood that the unions maintain expectations of salary recovery – based on what happened – and not on what will happen in the future. Thus the transfer to company prices, which would increase again, would consolidate the vigorous inflationary circle. To this we must add the rates that were stepped on and the exchange rate that seemed not to withstand the crawling peg of 2% per month.

Milei and Caputo plan to continue adjusting rates, fuels and services, although it was demonstrated with Mauricio Macri that this is how effective inflation and inflationary expectations are pushed. In May, salaries, pensions and social plans will increase, and company contracts with suppliers will be added with updates. At the same time, inconsistently, we said that Caputo reversed the increase in prepaid medicine companies and postponed the increases in bus and subway tickets in the AMBA, electricity, gas, and fuel rates. Next, he will seek to force a further slowdown in the short term, postponing the “compliments of relative prices for friends,” which will entangle problems with beneficiaries and fuel a higher expected inflation rate in the coming months.

How are we doing?

The economic situation in general is expressed through the annual growth rate of the economy. GDP remains the most significant measure of how things are going. Rates below 3% are considered low, while between 3% and 5% are satisfactory in medium periods, high rates are greater than 5%. This year the most optimistic average calculations confer a drop of around 3%. Our predictability tools – it is not a forecast – are seeing a 5% drop.

Jaques Billy said that, along with compulsory military service, Economic policy is the most powerful coercion that the State exercises over individuals. But he also expressed that he thought that economic policy would always be an art.

The government is modifying all its own and foreign contours and structures with the unbreakable will of the men and women who make it up, with their passions, the unpredictable reactions of the president, plus the periodic whims of some corporation. It is clear that, for now, art is winning over science.

We said at the beginning that after a brutal fiscal adjustment, the closing of the accounts as of March 31 and the final April tender show the limits of the supposed achievements in fiscal matters. Indeed, in March, the fiscal surplus was $277 billion, but it was achieved with an increase in floating debt of $406 billion, which indicates a undeniable difficulty in sustaining the fiscal result of an estate effective.

The primary surplus is reducing month by month, income shows increasingly sharp real year-on-year falls due to a fierce recession and public spending that not only does not give in, but also grows due to the essential and increasing updating of budget items. The fiscal improvement of 5.5% of GDP was explained by fleeting components such as the liquefaction in pesos of around 60%. That phase is exhausted. The inflationary explosion that the government inflicted on itself in December 2023 is explained by the majority of public spending items and by the rise in the country tax rate from 7.5% to 17.5% (+133%).

The supposedly successful surplus of the first quarter was obtained thanks to the non-payment or breach of commitments with energy companies for $1.1 billion, 29% of the primary surplus of $3.8 billion and almost the entire fiscal surplus.

In the subsequent tender in April, the Treasury barely managed to renew the debt maturities even though the BCRA offered puts in 2 of the 4 securities offered and issued pesos to buy bonds from the banks in the days prior to the tender, just over $1.5 billions, thus the closing of the tender was delayed to stimulate the presentation of new customers.

So things are, The adjustment is being dissolved due to the weakness of collection and the minimal harmony of “blender” collapse of real spendinggiven the growing need to pay attention to expenditure items, such as the maintenance of railways (at the risk of new accidents that lead to judicial/criminal proceedings). Remember Cristina Kirchner’s officials who were sentenced to 8 years in prison for the Once accident.

The rate of decline in income is accelerated by the enormous recession, while the rate of fall in public spending is moderated by less liquefaction. Primary spending returned increased in March (+6%), month on month in real terms. About 45% of the 5.5% tax improvement. The other 55% of the fiscal improvement of 5.5% of GDP in the first quarter of the year responded to the outright liquefaction. The rest is a cut in capital spending, transfers to the provinces, economic subsidies and part of other items for fiscal adjustment decisions.

Assuming that the DNU that establishes the new mobility formula does not fall, the permanent adjustment of public accounts would be 50% of what was carried out in the first quarter of 2024. There would then be two inconsistencies: there would remain an important fiscal adjustment to be carried out to level the accounts prosecutors, which would lead to maintaining a very low horizon of provinces that will judicially claim the “filings” and, possibly, achieve a successful sentence.

The admitted constraints contributed to derailing the government’s exercise, moving it away from its initial objectives. Sometimes they slowed down, other times they accelerated, because they come from varied pressure groups, actors and defenders of specific interests. These coercions were deployed through the efforts of lobbyists and even legal studies from large companies participated in the drafting of the DNU. There were public relations and press campaigns, even right now there are interventions with parliamentary connections. This diversity of influences and their effects externalize the balance of “freedom” at any cost.

The government continues to play the game of discovering that with adjustment and recession the inflation rate slows down, but in reality, it increasingly resorts to dirigiste interventionist and “zero liberal” statist instruments to strengthen an economy with stable prices. Thus, he first emulated Guillermo Moreno when he called supermarkets, mass consumption companies and refiners. Immediately, it stopped the increases of prepaid medicine companies through DNU and now postponed the increases that were agreed within the framework of the “correction of relative prices for friends”, such as public transport tickets in AMBA electricity and gas rates, buses , subway, prepaid and fuel, which were postponed with the explanation of achieving a financial surplus.

Meanwhile, Labor delays the approval of the agreements of the private sector joint ventures, when the increases exceed Caputo’s discretionary intolerance.

With these results and a market that believed in the commitment to adjustment, country risk fell and Argentine financial assets rose. But these advances are not enough, because neither the IMF, nor the private investment funds, nor the banks; They lend Milei-Caputo a dollar. For that reason, Macri’s trap is still in force and will not be lifted. The dirigiste policy of Macri and Alberto Fernández is still in force.

But there is more, in February 2024 activity fell (-0.2%) compared to the terrible January and (-0.5%) without taking the contribution from agriculture, completing a two-month period to be forgotten.

Caputo, enthralled with the “carry trade”, even lowering the rate to 40%, does not think about anything else, it is evident by the inconsistency of the measures he takes to continue “one more day.” The thing is that through the full application of the “bicycle”, the local banks with which his partner Bausili deals, exceeded 10,000 million dollars in accrued profits, partly realized.

A plan that would lower the inflation rate to 4 times Macri’s worst inflation rate (2019) cannot be sustained as success.. There is no stabilization plan that achieves the success of Cristina Kirchner (20/25%) annually, with growth in product, employment and salary, keeping the middle class happy. It is necessary to understand that 57% of the poor are hungry in Argentina and the personal finances of middle class families do not work with “constant deprivation. The middle class wants to: Save, 2. Invest and, 3. Enjoy. These three issues are essential parts of a full life for the middle class.

We must understand that, if we do not get out of the recession quickly, the middle class can trigger social conflict. The recovery driven by the sole rebound in net exports is not enough to expect an improvement in private consumption. The delay of the real exchange rate is accepted by the entire group of macroecolobists who covertly support the government, because they think the same as them and prefer that Milei and Caputo sacrifice themselves.

Although Juan Pazo-undersecretary of Economy- said: “There is an expectation of consistent exchange rate appreciation, which will leave the exchange rate close to the floor of $550 or $600. The rate will probably beat the dollar and it will be more convenient to invest in pesos than wait for devaluation”Nobody believes it, yesterday the blue dollar rose almost 3%, especially because as we said, the sustainability of the fiscal adjustment is weak and probably unviable, from the social side.

Director of Esperanza Foundation. https://fundacionesperanza.com.ar/ UBA Postgraduate Professor and Master’s Degrees at private universities. Master in International Economic Policy, Doctor in Political Science, author of 6 books, @pablotigani

Source: Ambito

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