With just months to go before Argentina’s national legislative elections, the government is seeking results and has focused all its efforts on one goal: reducing inflation. But while the recent slowdown in both consumer prices and wholesale inflation was celebrated, other economic variables may undermine Economy Minister Luis Caputo’s strategy. Notably, there are still no signs that purchasing power is recovering, which could weaken the government’s inflation strategy as an electoral tool. The role of price-controlled services (known as regulados) has become central in the run-up to the vote.
May’s inflation figure came in at 1.5 percent, according to the INDEC national statistics bureau – the lowest monthly rate since May 2020. Year-on-year inflation reached 43.5 percent, marking 13 consecutive months of slowdown compared to the same month a year earlier. This is Argentina’s lowest annualised rate since March 2021. Inflation for the first five months of 2025 totalled 13.3 percent – the lowest cumulative figure for this period since 2020.
“Seasonal prices like fruit and vegetables pushed the average down and the monthly CPI variation was the lowest since May 2020. After major hikes in regulated services (electricity, water, gas, housing rents, public transport and education), the government is now holding these prices down, but it’s also holding down wages. For four months, regulated prices have risen less than inflation, marking a shift in price policy. Is this a correction of relative prices or just an election year move?” asked the Instituto Argentina Grande (IAG) in a recent report.
Despite this, much of the government’s relative price adjustment has focused on regulated services – especially cuts to energy subsidies and increases in utility rates. Households now pay close to 80 percent of the “real” cost. In November 2023, the gap between regulated prices and general inflation was 40 percent – today it’s below 18 percent.
'Significant progress'
The Milei government “has made significant progress in price adjustments, particularly in distribution. Now it’s applying monthly, index-linked adjustments more systematically. There was a major ‘catch-up’ in the first quarter. Electricity bills now reflect around 80 percent of the real tariff. Since February, distribution costs are updated monthly using an automatic mechanism tied to the CPI and the IPIM. Gas follows a similar scheme, under a transitional tariff review,” economist Leo Anzalone of the Centro de Estudios Políticos y Económicos (CEPEC) think tank told Perfil.
Though regulated prices have climbed more than 300 percent since the current administration took office, their monthly increases have recently slowed: 2.3 percent in February, 2.4 in March, 1.8 in April and 1.3 in May – all below the general CPI (2.4, 3.7, 2.8 and 1.5 percent, respectively). Compared to March 2019, regulated services are still far below other CPI categories, whose increases have levelled out.
“In this broader context of disinflation, monthly increases in regulated prices appear lower in relative terms. But that’s not due to a freeze – the sharpest adjustments have already taken place, and now a more gradual, index-linked scheme is in place,” said Anzalone.
Looking ahead, subsidies are expected to rise again during winter to curb retail tariffs. “Until April, subsidies were far below last year’s levels. But in winter, costs surge – gas, LNG imports and fuel for electricity all go up. Tariffs haven’t increased – the seasonal power rate is still US$60, but real costs are much higher. So subsidies will return, mostly in electricity, which accounts for nearly three-quarters of total subsidies. Is this linked to the elections? Probably,” said Daniel Dreizzen of the Aleph Energy consultancy firm, an economist and energy specialist.
According to Hernán Herrera of the Instituto Argentina Grande, falling prices are being driven more by lower consumption and falling activity in key sectors than by policy.
“Industrial output fell 9.8 percent in the first four months of 2025 compared to the same period last year; construction dropped 26 percent; and primary public spending fell 27 percent. That’s a huge resource cut. The economy is smaller – the monetary squeeze is working. But no one is living better or producing more, except for a few sectors,” he told Perfil.
Meanwhile, the wholesale price index fell by 0.3 percent in May – the lowest year-on-year change (22.4 percent) since December 2017. Cumulative wholesale inflation this year stands at 7.4 percent. The drop is largely due to stable import costs from a steady official exchange rate.
“With more goods in the wholesale index’s basket, wholesale inflation is falling faster than retail, which is still pushed up by services growing at 2.7 percent per month. When services consistently rise faster than goods, prices must eventually converge – either through goods catching up or services deflating. This dynamic points to an inflationary floor,” noted the LCG consultancy firm in a report.
Macroview’s Pablo Goldin explained that in the 1.5 percent CPI, 35 percent of prices were flat or near zero, while 45 percent rose around 2.5 percent.
“Part of the economy is aligning with disinflation. But a larger part is still rising faster. That’s the challenge: some prices are nearing zero, but others are stubbornly rising,” he told Radio Rivadavia in an interview.
“If fiscal discipline holds, we may eventually reach a low-inflation regime. But we shouldn’t underestimate these persistent components, especially in a country with deep inflationary memory. As soon as demand picks up, margins get reset,” the LCG report added.
Low inflation vs low purchasing power
Beyond whether a near-zero CPI or a figure starting with ‘1’ can influence the October vote, the big question is whether this actually helps people’s wallets.
According to analysts, there is little evidence that falling prices are improving purchasing power, except in a few product categories. Durable goods have seen some improvement, but mass consumption items have not.
April marked the first year-on-year rise in large supermarket and self-service consumption after 15 consecutive monthly falls – but it was only 0.1 percent, according to a report by Scentia. The first quarter closed with a 6.5 percent decline compared to early 2024 – already one of the worst periods due to the post-devaluation slump. In short, the rebound is from a very low base.
Economist Roberto Cachanosky told the Canal E network that official figures don’t reflect reality: “The goods basket used in the CPI no longer matches what people actually spend on.”
He added, “Rising service costs are squeezing household budgets. That’s why consumption is stagnant. If services were weighted more heavily, CPI wouldn’t be 1.5 [percent].”
An analysis by the Grupo Atenas organisation echoed this, noting that the inflation slowdown hasn’t lifted wages: general and formal private sector salaries remain at September 2024 levels – similar to November 2023.
“Education, health and telecoms are still rising. Price increases are passed on by companies, and that hits household budgets. So while the average CPI may fall, the lived experience often doesn’t match the official numbers,” said Damián Di Pace of the Focus Market consultancy firm.
A recent report by Argentina’s Labour Secretariat found that real wages have fallen for the past three months. In April, the average private-sector registered wage dropped 1.6 percent in real terms.
Despite falling inflation, purchasing power is still eroding.
Fixed costs rising, household income falling
“The average inflation rate is not below what middle-class households experience,” said Di Pace. This is especially evident in fixed budget items.
“If school fees rise 6.5 percent and your pay rise is 2.7, and you add 4.1 for telecoms, your income isn’t keeping pace,” he explained.
According to a report by analysts at Empiria, household disposable income fell 1.3 percent in the first quarter compared to the end of 2024 – its lowest level since August that year.
In March, average household income in the Buenos Aires metropolitan area dropped 2.2 percent in real terms, largely due to the 3.7 percent monthly inflation spike. Fixed costs, however, recorded their first real-terms drop since January 2024 – including a 2.3 percent fall in electricity and gas, and 2.6 percent in water – softening the blow.
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