Inflation: Argentina climbed to first place in the world in the rate of acceleration of consumer prices

Inflation responds to a “widespread and sustained increase” in the level of consumer prices that the official statistical agency measures each month on “an approximate amount of 320,000 at collection points,” specifies the Indec in the Methodological Report (REUTERS /Agustin Marcarian)

The rate of general increase in prices in the Argentine economy does not seem to find its ceiling, although in short-term periods, such as a quarter, it is clearly seen how it was advancing in steps, first to 2%; then to 4%; it followed 6% and in July it accelerated to a range close to 8%. For now, it is moving in arithmetic progression, two by two, but there are not a few economists who warn of the risks of moving to geometric progression: 2, 4, 16…, particularly when the monthly rate is already moving to a rate equivalent to three percentage digits per year (7%, for example repeated 12 consecutive months leads to an accumulated increase in that section of 125%, almost double that registered in June compared to the same month of 2021 by Indec ).

It is a “widespread and sustained increase” in the level of consumer prices that the official statistical agency measures each month on “an approximate amount of 320,000 at collection points”, specifies the Indec in the Methodological Report of the estimate of the CPI, which includes “traditional businesses of different items, super and hypermarkets, service providers, schools, tenant households selected in accordance with the distribution of expenses according to the type of business from the National Survey of Expenditure of Homes (ENGHo 2004/2005, and with subsequent adjustments and adaptations).

However, more and more often government officials, and even President Alberto Fernández himself, highlight in statements to the press and speeches that it is a “multi-causal phenomenon” and that it is explained by the concurrence of the “remarks of those who speculate on a devaluation” and the effects of the “war between Russia and Ukraine”.

In less than five countries there is an acceleration of inflation of the magnitude that Argentina has experienced in recent months, even without devaluation of the official exchange rate, and without a strong increase in tariffs as a whole.

These arguments are quickly weakened to the extreme when observing the performance of inflation in a set of 192 countries surveyed by the International Monetary Fund and which has just updated its projections for the current year and the following upwards, because in less than five there is an acceleration of the magnitude that Argentina has experienced in recent months, even without devaluation of the official exchange rate, and without a strong increase in all public utility rates.

Even more so when in the real sector there is a worrying picture that affects the productive, commercial and employment system: “The restrictions imposed by the economic and monetary authorities, already widely known, are generating various inconveniences in the automotive supply chain. At the same time, uncertainty about the financial and foreign exchange markets is also causing rises in the cost of materials of local origin whose price evolves according to international prices in dollars according to alternative legal prices”, the Association of Manufacturers of Auto Parts and Components (AFAC) alerts the economic authorities in a statement.

The constant rise in prices is a permanent concern of the consumer in Argentina (EFE)
The constant rise in prices is a permanent concern of the consumer in Argentina (EFE)

Clearly, these are concerns of a domestic nature that have nothing to do with the effects of the health crisis at the beginning of 2020, nor with those of Russia’s invasion of Ukraine, because these events, although they affected all countries, in the vast majority of cases did so in proportions in terms of percentage rates of acceleration of inflation notably lower than that shown by Argentina.

These are concerns of a domestic nature that have nothing to do with the effects of the health crisis at the beginning of 2020, nor with those of Russia’s invasion of Ukraine.

Regarding the moment prior to the outbreak of Covid-19, while the inflation rate in the average of 192 countries accelerated by 3 percentage points: from 3.8% in 2019 to 6.8% in the new IMF WEO estimate for 2022 -it is not equivalent to 79%, but only 2.89% (a price index that was at 100 in the world average rose to 103.8 in one year three years ago, and now that 100 index passed in 12 months to 106.8)-; in Argentina it rose from a rate of 53.8% to 76% in the projection of the REM of the BCRA in the same period, although in the next measurement it is expected to be higher.

They only performed worse than Argentina, Sudan, Turkey and Yemen; while Suriname and Russia matched it, although with interannual inflation rates that went from 4.2% to 25.8%, in the first case -after a peak of 60% in the previous two years-; and from 3% to 24%, in the second -for the cost of the invasion of Ukraine-.

Y similar exercise, but limited to the current year in which the world that had not managed to overcome the effects of the health crisis was surprised by the war between two large countries that supply essential raw materials, such as food and energyalso elevates Argentina to first place among those that accelerated the most in inflation, along with Zimbabwe.

Clearly, both the health crisis and Russia’s invasion of Ukraine destabilized all economies, to the point that the IMF’s latest global report highlights: “At this time, the main policy priority is to control inflation, since the Price stability is a precondition for lasting gains in economic well-being and financial stability. The appropriate mix of monetary, fiscal, and structural policies to reduce inflation varies across economies, depending on the sources and intensity of price pressures..

The top policy priority is to control inflation, as price stability is a precondition for lasting gains in economic welfare (WEO-IMF)

And then IMF economists maintain, as if they were reading the indicators of Argentina today: “Economies in which inflation and underlying inflationary pressures have persistently and significantly risen above target levels should take aggressive action to tighten monetary policy, and central banks should reduce balance sheets and raise rates. of actual interest. In the short run, those policies reduce inflation at the expense of lower real activity, higher unemployment, and lower wages.

And the introduction of the document led by the chief economist of the IMF, Pierre-Olivier Gourinchas: “A return to low and stable inflation before expectations are unanchored would create an environment conducive to investment and growth and avoid the need for a more abrupt and disruptive adjustment later”.

“A return to low and stable inflation before expectations become unanchored would create an environment conducive to investment and growth and avoid the need for a sharper and more disruptive adjustment later,” said IMF Chief Economist Pierre-Olivier. Gourinchas (AFP)

The “grim and more uncertain outlook” forecast by the IMF

According to the base forecast of the World Economic Outlook-IMFgrowth will slow from 6.1% last year to 3.2% in 2022a decrease of 0.4 percentage point from the April 2022 edition of the World Economic Outlook (WEO). The lower growth registered at the beginning of the year, the loss of purchasing power of households and a more restrictive monetary policy caused a downward revision of 1.4 percentage points in the United States. In China, the new lockdowns and the worsening of the crisis in the real estate sector have forced growth to be revised down by 1.1 percentage points, with important repercussions on a global scale.

He adds: “Overwhelmingly, the risks to the outlook are to the downside. The war in Ukraine could cripple Russian gas imports into Europe; inflation could be more difficult to reduce than expected, either because labor markets are tighter than expected, or because inflation expectations become unanchored; tightening global financial conditions could cause debt overhang in emerging market and developing economies; new outbreaks of Covid-19 and lockdowns, as well as a worsening crisis in the real estate sector, could further inhibit growth in China, and geopolitical fragmentation could hamper global trade and cooperation.”

For Argentina, the WEO-IMF maintained the target inflation rate of the current stand-by agreement for 2022, much lower than that estimated by the BCRA’s REM

For Argentina, the IMF did not take the trouble to consider in the new WEO neither the current annualized rate of inflation in perspective (forward based on the average monthly rate of the last quarter, 6%, which gives little more than 100%; nor the one that arises from the Survey of Market Expectations made by the Central Bank -76%-, but kept it at 48% for the current year and 42% for the next, according to the 2018 stand-by credit refinancing agreement that signed by former Economy Minister Martín Guzmán, but that without a doubt it was halfway, and whose final data is projected to consolidate among the highest in the world, higher than the 85.8% that the organization expects for Zimbabwe, although still below the 500% estimated for Venezuela which comes from 2,960% in 2020 and slowed to 686.4% in the last year. And there is no doubt that this leadership can be attributed in preponderant proportions to the aftermath of the health crisis and energy restrictions and the acceleration of international food prices, two items that the country inexplicably misses out on.

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