Inflation in Argentina ticked up slightly and less than expected in June, another win for President Javier Milei ahead of midterm elections after a large seasonal component pulled May’s reading down to a five-year low.
Consumer prices rose 1.6 percent last month from May, less than the 1.9 percent median estimate of economists surveyed by Bloomberg. Annual inflation slowed to 39.4 percent, according to government data published Monday. May’s 1.5 percent print was the lowest since May 2020.
June’s print was expected to pick back up without extra help from seasonal forces, like fruits and vegetables, which anchored May inflation — although a decline in international food commodities likely helped keep prices stable. Additionally, the currency weakened 1.2 percent in June on heightened volatility, as the peso floats between bands determined with the International Monetary Fund.
“It’s good to be able to sustain inflation below two percent, although it depends in part on the performance of seasonal products, which again fell,” said Sebastian Menescaldi, director of EcoGo, a consulting firm in Buenos Aires. “The most positive takeaway is that core inflation fell below two percent for the first time.”
Housing, water, electricity and other fuels weighed heaviest on the June reading, according to the government data. Food and beverages and clothes registered the lowest price increases. Core inflation was the lowest since May 2020.
In the first two weeks of July, the peso’s value fell about five percent, yet economists predict a minimal impact on prices. The currency weakened on increased seasonal demand for dollars ahead of South American winter holidays and the usual electoral turmoil ahead of a midterm vote. Last week, Argentina’s Senate approved a flurry of bills that jeopardise Milei’s hard-won fiscal surplus, the pillar of his economic programme.
“There may be volatility, that’s it,” Economy Minister Luis Caputo said during an impromptu television interview July 9, Argentina’s independence day, as he sought to calm market expectations ahead of the vote in the upper chamber. “It’s not a problem.”
Interest rates veered sharply into positive territory since the new IMF agreement, signed in April, although with less of a differential in recent weeks. The high cost of borrowing is slowing down the rebound in economic activity, which still shows significant signs of year-on-year improvement. Economists surveyed by the Central Bank expect five percent growth this year.
Argentina will go to the polls in October to vote for a large part of the national congress, and the economy will be the main item on the ballot. In September, Buenos Aires Province, home to nearly 40 percent of the population, will also vote for its local representatives. A good election result for Milei could convince wary investors that his pro-market reforms are here to stay.
by Manuela Tobias, Bloomberg
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