Inflation in Argentina hits 79% ahead of likely rate hike

Annual inflation in Argentina surged to 78.5 percent in August, almost certainly cementing another Central Bank interest rate hike as early as this week. 

That was faster than the 78.2 percent median estimate from analysts, and marks a new three-decade high, according to government data published Wednesday. Consumer prices rose seven percent from a month earlier. 

Clothing prices rose 109 percent from a year earlier, while food costs increased by 80 percent. Worse may be to come, since the government raised regulated utility prices in September, which will have a knock-on effect in several sectors.

“Monetary tightening won’t suffice to cool price gains in the near term. Energy subsidy cuts and pass-through from faster peso depreciation will push inflation near 90 percent by year-end,” said Adriana Dupita, Latin America economist for Bloomberg.

Central Bank officials are widely expected to raise borrowing costs in the coming days. The monetary authority has started hiking more aggressively since Economy Minister Sergio Massa took over in early August. 

Keeping rates above inflation is also a key pillar of Argentina’s US$44-billion programe with the International Monetary Fund. The benchmark rate currently stands at 69.5 percent. 

Massa met Monday with IMF Chief Kristalina Georgieva in Washington, committing to implement the programme. Massa also told reporters afterward that bringing inflation down is one of the government’s top priorities. 

Local economists aren’t convinced yet. They see annual inflation reaching 100 percent between the end of this year and early 2023.