Consumers predict inflation will hit 45% this year

Consumers in Argentina expect prices to rise by a whopping 45 percent this year, with many anticipating a surge in inflation over the next 12 months.

The latest version of the Inflation Expectations Survey, prepared monthly by the Centre for Finance Research at the Torcuato Di Tella University, revealed that the majority of consumers believe inflation will come rocketing back this year.

According to the median of responses, inflation of 45 percent is anticipated in 2021. Average responses put the figure slightly lower, at 44.1 percent.

The survey’s authors said the results were a sharp rise on the previous month, indicating growing pessimism over the state of Argentina’s economy.

“Forty-five percent represents an increase of five percentage points compared to December (40 percent), breaking a certain stability in expectations that were centered on 40 percent," they wrote.

Argentina closed out 2020 with an annual inflation rate of 36.1 percent, a significant drop from the previous year's sky-high tally of 53.8 percent. However, most private analysts observe that the 2020 rate was affected greatly by restrictions imposed to tackle the spread of Covid-19 in Argentina, as well as a number of price controls.

According to the Torcuato Di Tella University survey, consumers are increasingly less confident that the government will be tamp down runaway price increases, despite Economy Minister Martín Guzmán stating recently that he wants to reduce inflation by five percent a year during President Alberto Fernández's time in office.

From January to March 2020, the UTDT survey showed consumers anticipating a rate of 30 percent in 2021, though that later rose to closer to 40 percent towards the end of the year.

Forecasts are also affected by a consumer’s rate of income – in general terms, those at the top end of the scale expect a slightly higher number when compared to those with lesser incomes. Interestingly, those at the bottom of the scale also provided higher rates in their predictions.

In the regional distribution, those living in the ‘interior’ of the country (i.e. inland provinces) also predicted higher rates than those living in the metropolitan areas.

Every January, an extra question is also included, through which respondents are asked ti say how much inflation totalled last year. In contrast to the true rate of 36.1 percent, the average response by those surveyed was 54.5 percent.

Consumers aren’t the only ones who predict high rates, however. During an online videoconference event this week, economist and former Banco Nación president Carlos Melconian predicted there would be little rebound in GDP this year and predicted inflation could reach 50 percent.

"Argentina is without [Central Bank] reserves and with 50 percent inflation, plus strong monetary issuance will continue in 2021," he was quoted as saying by Infobae.

The most recent survey of private economists by the Central Bank also put the figure close to 50 percent, with an average response of 49.8 percent, Cronica reported this week.

Shoppers lose out

Over the last three years, wages have slipped 18 percent against the basic family shopping-basket, which rose 205 percent in that period against an average 150 percent for salaries while investment has fallen off 41 percent with less supply of goods and services for more demand, an analysis by the Argentine Institute for Social Development (IDESA in its Spanish acronym) revealed this week.

“Since the current crisis started, the poverty line has been rising faster than formal private-sector wage levels so with these trends it is not surprising that the percentage of impoverished households rose from 20% to 30% between 2017 and 2020,” concluded the institute headed by Jorge Colina since less investment means wages growing less than prices so that “even when people find work, they cannot escape poverty.”

“That’s why the proposals of political speeches that jobs are the exit from welfare are purely wishful thinking,” maintains IDESA, with welfare here to stay. The institute also questioning “taxing those who have more in order to redistribute in the name of solidarity since that only makes investment fall, multiplying poverty.”

The prospects are not encouraging according to the projections of the 2021 budget which have investment growing 18 percent in 2021, 10 percent in 2022 and seven percent in 2023, which would still leave investment 10 percent below 2017 levels.