JP Morganthe banking giant, issued a report on Argentina in which it addressed inflation and concluded that price dynamics remain a central issue for the Argentine economydespite the slowdown, but welcomed recent data which reflected a slight slowdown, although he warned that challenges persist.
The JP Morgan document recalls that the Consumer Price Index (CPI) for September returned 3.5% monthly, a number that was in line with its expectations and that represents a decrease compared to the 4.2% registered in August. For the Wall Street giant, this decline was mainly driven by a drop in food prices, “the reduction of the PAIS tax and a slowdown in regulated prices.”
However, he warns that the picture is not uniform. Core inflation, which excludes more volatile items such as food and energy, experienced an even sharper slowdown, falling to 3.3% monthly, the lowest level since January 2022. This data is encouraging in a context in which annualized inflation continues to exceed 200%. JP Morgan’s preferred metric, which excludes food prices, stood at 3.7%, also the lowest in almost two years, reflecting a positive trend, “but still insufficient to ensure complete stabilization“.
The bank recalls that when broken down by components, food prices slowed to 2.3% monthly, led by the fall in the prices of meat and vegetables, which contributed significantly to the moderation of the CPI. Despite this reduction in the cost of food, “other sectors showed mixed behavior. Furniture and household equipment, sensitive to imports, registered a moderate increase of 2.7%, while clothing and footwear showed a significant increase of 6.9%, reflecting an acceleration in some unregulated goods“he warns.
Inflation: signs of slowdown
The banking giant’s projections are more optimistic than those of some consulting firms in the city of Buenos Aires. For example, the latest report of Econviews It foresees a price dynamic of 3.5% for October and November, and 6.5% for December. Regarding the first months of 2025, Miguel Kiguel’s consulting firm estimates inflation of around 4% for the first quarter and 3% for the last quarter of the year.
In this regard, Juan Manuel Francochief economist of SBS Group, explains that after the slowdown in price dynamics in September, the market expects this trend to gain strength. And according to the implicit inflation in pairs of fixed rate public securities and CER, “the market has discounted in prices an average inflation of 2.9% month to month between now and the end of the year,” adds the analyst.
In any case, Franco estimates that this optimism must be calibrated with the fact that there are still relative price adjustments that could weigh on general inflation. Likewise, it will be key for the Government to avoid tension in the exchange market and highlights that, despite the fact that there has been a notable exchange rate calm for weeks, “net reserves remain negative“For the strategist, it will be key from now to the next few weeks to closely follow the high-frequency inflation data, as well as private deposits in dollars, which, in seven rounds of October, fall by US$948 million, although the total stock remains above US$30.4 billion.”
JP Morgan points out in its document that the high frequency data corresponding to the first week of October indicate a greater slowdown in general inflation for the month, standing at 3.1% monthlyl. This is due to a slowdown in food prices (0.6% weekly), as well as the announced decrease in gas and fuel prices (-4.5% and -1% monthly, respectively), which which contributes to moderating increases in the general CPI index, he adds.
Looking ahead, the bank expects monthly inflation to average 3.7% monthly in the fourth quarter of 2024, assuming a modest rebound at the end of the year and early 2025 due to the transition to a new policy framework and unification of the exchange market, in line with other local consulting firms. “This is consistent with our inflation forecast for December 2024 at 125% year-on-year,” he warns.
By 20225 and in a scenario of a stabilization program and a sustainable exchange rate regime that generates a credibility shock, “we see room for inflation decelerates to an average level of 2% per month throughout 2025which is consistent with year-end inflation in 2025 of 35% year-on-year,” warns JP Morgan.
Finally, it clarifies that there is “the risk that a delay in the release of capital controls will weigh on economic activity and the exchange rate gap”, adding upward pressure. on inflation as October legislative elections approach. “We emphasize that continuing with relative price adjustments and moving towards the liberation of capital controls are two necessary conditions to consolidate a path of sustainable disinflation going forward,” he concludes.
Source: Ambito
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