Argentines brace for 90% inflation after economy minister’s exit

Argentines face the prospect of 90 percent inflation by year end after the economy minister’s exit triggered overnight price rises and the Central Bank comes under pressure to let the peso depreciate more rapidly.

That would be the fastest pace since hyperinflation three decades ago, and the highest rate in the world outside Venezuela and Sudan, according to forecasts from the International Monetary Fund.

The dramatic exit of former economy minister Martín Guzmán this month led to price mark-ups by many businesses. Some Argentines raced to the shops the morning after Guzmán quit, to try to stock up ahead of peso devaluation and price hikes.

June inflation data due 4pm local time Thursday is already overshadowed by the price hikes in July and beyond. Prices rose 64 percent in June from a year earlier, according to analysts surveyed by Bloomberg, from 61 percent in May.

Consulting firms in Buenos Aires, such as EconViews, FMyA, Alberdi Partners and EcoGo, are predicting 2022 year-end inflation of 90 percent. One forecaster, FIEL, expects consumer prices to rise 92 percent, while some other analysts, such as EcoLatina and Empiria Consultores, see inflation ending the year at 85 percent.

Before Guzmán’s exit, economists surveyed by the Central Bank had been forecasting year-end inflation of 76 percent. Money-printing to finance government spending and rising international commodities prices have also contributed to galloping price rises.

Looking ahead, analysts see the government of President Alberto Fernández without tools or a credible strategy to cool inflation. Some expect the Central Bank to speed up its daily devaluations of the peso, which would allow it to spend less money on defending the crawling peg, though this would put even more pressure on prices.

Argentina’s powerful labour unions may renegotiate workers’ wage increases to compensate for price hikes too.

Here’s what economists are saying in Buenos Aires:

Marcos Buscaglia, Alberdi Partners
– Forecast: 90 percent
– “The final number will hinge on whether the government can delay a devaluation of the peso to 2023 or not. If it doesn’t, inflation could well get past 100 percent”

Andres Borenstein, EconViews
– Forecast: 90 percent
– The government “clearly has to devalue at a faster pace than what they’ve been doing. At an annualised rate, they’ve devalued at a pace above 70 percent and that has to continue”

Federico Moll, EcoLatina
– Forecast: 85 percent
– After Guzmán’s resignation,“Expectations changed and the way that certain durable goods are priced changed significantly”
– “This is going to have a tough carry over for next year, it’s hard to imagine a major slowdown in prices. We don’t see inflation in 2023 below 70 percent”

Juan Paolicchi, Empiria Consultores
– Forecast: 85 percent
– “The combination of greater import restriction at the end of June and the uncertainty about access to dollars at the official rate made us revise our projections”

Federico Furiase, Anker Latinoamerica
– Forecast: 77 percent
– His estimate “is probably a floor”
– “The traditional anchors don’t work: You can’t keep appreciating the exchange rate because you don’t have net reserves; utility bills have to start to rise to lower subsidies and the deficit; salaries are getting revised after losing ground due to inflation accelerating”

Other forecasts:

– Fausto Spotorno, OJF y Asociados: 85 percent
– Marina Dal Poggetto, EcoGo: 90 percent
– Fernando Marull, FMyA: 90 percent
– Daniel Artana, FIEL: 92 percent