The CPI data for January of 6%, the highest in the last 32 years for the beginning of the year, once again turned on the alarms within the Government. A hot start to the year that makes it difficult for the aspirations of the economic team regarding inflation, in an electoral 2023 that, in turn, will have the dollar as another front that should be addressed from the Palace of Finance, not only to avoid a triggered by the parallel price but also by the accumulation of foreign currency in the Central.
The 6% was the highest data for a beginning of the year since 1991, when January of that year marked 7.7%. The economist Salvador Vitelli explained to PROFILE that “it is a dynamic that is very worrying considering that January was always a month with a certain seasonality in the demand for money, people need pesos and that means that prices do not vary too much.”
To reach the 60% annual goal, you could realize monthly increases of 3.8%
For his part, Eugenio Marí, chief economist of the Libertad y Progreso Foundation, told PERFIL: “The 6% rise in the CPI in January reflects the underlying imbalances in the economy. For this year, the consolidated deficit will exceed 8% of GDP. And with few instruments available, it will not be uncommon for it to depend on monetary financing (direct and indirect). This is not compatible with a drop in inflation, and will leave us far from the 60% inflation target set in the Budget”.
However, the rise in prices at the beginning of the year not only continues to leave a high floor, but also a drag that presented the 40% increase in prices in standing farms, in the second half of January, which used the increase in the value of bovine meat, for which food will once again be the item that drives up the CPI in the current month.
According to the C&T retail price survey for the GBA, “in February food inflation is rising sharply, with meat playing the leading role. On the contrary, the items linked to tourism lose some dynamism because February is less seasonally important. In this way, inflation in February would be around 5.5%”.
According to Ecolatina, the price increase this month travels to 6.1%, that is, the first half of February against the same period in January. Driven mainly by “food and beverages with 9.2%”, and in the interior above all “beef with 22%”. It remains to be seen how inflationary dynamics develop in the rest of the month.
In turn, they highlighted that “in this context, the Government’s goal of inflation of around 60% year-on-year for December seems extremely challenging, taking into account that to achieve it from February to December the monthly variation of the CPI should be an average of 3 ,8%”.
Also, another fact that reveals the difficulty of complying with what the Budget says regarding inflation is that the Treasury validates rates above 118%.
Food would be rising strongly and items such as tourism are slowing down
The rise in prices is the thorn in the side of the Argentine economy, and the current management is no exception. So far in the presidency of Alberto Fernández, the CPI accumulates a rise of 324%. “We are experiencing the highest inflation since 1991. This number is more worrying if we consider that regulated prices have lagged far behind the general CPI. In other words, we have pent up inflation. This is noticeable in several prices where the Government is the one that manages the adjustments, such as the official exchange rate, transportation rates, public service rates, health and communications,” said Marí.
In the remainder of the year, various factors will continue to put pressure on an inflationary inertia that is difficult to disarm in the short term. Among them, the impact of the drought on the price of some foods; the transfer to the consumer of the adjustment in the prices of bovine cattle; the dynamics of salary adjustments in an election year; pending increases in utility rates; a currency crawling peg more aligned with inflation; restrictions on imports and tensions over the gap and expectations of devaluation in the midst of the electoral transition.
On the other hand, the other front that the Government will have to face this year will ensure that the parallel currency does not skyrocket, which, if it is the case, will add more fuel to inflation.
María Castiglioni, C&T economist, said: “After the rise that occurred in January, it is very difficult for the blue dollar to remain stable in this context, it came from what happened with the financial and fiscal question, how many pesos The BCRA has to absorb, and how many the economy has going around depending on economic and fiscal needs and expectations too, so it is not so clear that this will be able to stabilize so calmly ”.
And he concluded: “Especially taking into account the complex panorama of reserves in support of what is the official exchange rate and the official exchange rate will continue to increase at a rate that it will not be able to slow down as the Government would have wanted, Especially close to the elections.
BCRA alert for a key week of dripping
The reserves of the Central Bank, with a view to the next revisions contemplated in the agreement with the IMF, are once again under scrutiny. With respect to the accumulation of foreign currency, the BCRA will lose dollars from the reserves in the coming days with respect to the import payment in advance. Although some 2,100 million dollars will be saved, the arcades of the Central, which are in red, must be strengthened in around 45 days ahead of the first quarterly review of this year.
Net reserves under the IMF methodology show a fall of more than US$4.8 billion so far this year, and we estimate that the BCRA should buy close to US$3 billion by March 31 to meet the target of the first quarter of about US$7.8 billion,” said an Ecolatina report. Regarding the panorama of the drought, the economist Salvador Vitelli expressed that “there are different scenarios, although the majority were providing numbers of between 11 and 14 billion dollars that could be lost due to the drought. Two days ago, the Buenos Aires Grain Exchange estimated that, if the drought worsens, we could be at 14 billion.”
And he added: “But if there were early frosts, that number could rise much more, exceeding the US$ 18 billion in losses that the BCRA will have because they are dollars that did not enter its arcades.”
“At the same time it would imply a loss in tax collection of some US$ 6.5 billion, the drought is a scenario to be followed closely,” Vitelli concluded.
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