Some consider that the slowdown in inflation is a consequence of the recession, or that lowering it leads to a drop in activity level. However, in Argentina we have had plenty of examples of periods in which the inflation and there was strong growth, and also others that mixed an acceleration in prices or hyperinflation with a sharp drop in the level of activity. In fact, the latter is what happened in the last months of the previous administration. In other words, reality kills myths.
The current government has shown that the price increase It has monetary motives. In the management of Alberto Fernández-Sergio Massa The issuance of pesos to finance excess spending was increasing and drove the destruction of the purchasing power of the local currency, especially during the last elections. As happens in all countries in the world, currency excesses are not reflected in an immediate rise in the prices of all goods and servicesbut the process has delays (in normal economies it takes between 9 and 18 months; in Argentina much less).
In the first instance, the increase covers a largest subset of priceswhich explains the flash of 25% inflation in December 2023. But then there are fewer and fewer prices that remain to be adjusted and, therefore, the slowdown.
At the beginning of the current administration, no one projected that the decrease in the variation of the retail prices It was going to be so fast, and that was because no one believed that they would stop producing pesos as soon as they took office. As the government fulfilled this commitment, it stopped generating a new loss in the purchasing power of the local currency and, therefore, also stopped generating inflation in the future.
On the other hand, the recession does not play in favor of lowering inflation, but against. By lowering the transactional demand for pesos, it forces central banks to make a greater monetary adjustment. In addition, it lengthens the period it takes for the depreciation of the peso to reach all goods and services; because it is more difficult to sell. This process is the equivalent of lowering the price to place a product in a country that does not have inflation and it’s in recession.
The government’s decision to carry out a fiscal adjustment that equalizes total expenses with State income so as not to require financing from the Central Bank (BCRA), led to a change in the composition of demand. If it is issued to finance the government, it is taking away the purchasing power of those who have pesos, who will become poorer, while the spending capacity of the State will increase. The worst thing is that those who pay the most inflation tax They are the lower-income sectors, which have a greater proportion, if not all, of their assets in local currency. Of course, public spending increases suddenly and impoverishment arrives in the following months, leaving everyone worse than before. That is, to the people, the private sector and the savers in pesos, who are liquefied and transfer part of their income to the State, to those who live off it and to the debtors in pesos.
The reality is that the drop in activity level has other reasons. Throughout the second half of 2023, the perception that a crisis was coming was growing. To moderate the negative impact that the latter could have on the well-being of their families, people save in foreign currency; given that the weights are diluted in those types of situations. That meant reduce your consumption and investment, and so do companies concerned about this potential scenario. Thus, domestic demand plummets; what it does lower production and job opportunities, creating a recession. At first, the previous government was able to compensate for the decline in private demand with spending based on external debt taken by the Central Bank, but, when those resources ran out, the level of activity began to collapse in the second semester.
For the economy to recover, it is necessary to modify these expectations. That is, change the collision course, as requested by the majority of the electorate on November 19, 2023. Although the Executive Branch has some instruments to do so, economic and political systems are set by laws, and must be modified by sanctioning other regulations. similar within Congress. Unfortunatelythe majority of our legislators have been reluctant to take a turn in order to avoid the iceberg and head towards being a normal country. In fact, it is the first democratic government that has not approved any law in its first six months in office. Of course, add water.
If our parliamentarians do not change their attitude, Why will people change their decision to save out of fear? We need them to approve the necessary regulations so that uncertainty decreases and those who still have the capacity to invest or consume begin to do so. Let’s hope that in the Chamber of Deputies they fulfill their responsibility towards the Argentines and insist on the original version sent to the Senate; since we must regain confidence that Argentina can be a normal country. We need a strong recovery of the economy that allows people to be lifted out of poverty, unemployment, informality, and servile political welfare and given decent work. to those who have unemployment insurance disguised as a public position, who created decades of absurd policies.
Director of the “Liberty and Progress” Foundation.
Source: Ambito
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