Argentina recorded more inflation in the last month of 2017 than Brazil did throughout that entire year, the INDEC statistics bureau officially confirmed on Thursday – 3.1 percent for December (the same figure as estimated by Congress two days previously) as against a 2017 total of 2.95 percent for the giant neighbour.
This country’s annual figure, in contrast, was 24.8 percent – well below the 41 percent estimated for 2016 (there are no official figures since INDEC’s overhaul was not completed until mid-2017) but far above the year’s original targets of 12-17 percent, according to the 2017 Budget.
Last month’s inflation was the highest of any month in 2017 and was heavily influenced by sharp post-electoral utility billing increases. It is feared that this peak figure will add momentum for this year, especially with major transport fare increases coming as from next month plus further utility bill increases in the pipeline for water, electricity and gas (along with smaller rises for prepaid health schemes). However, the government is expecting the impact of these increases (the result of subsidy cuts) to diminish after April while the downward trend in inflation since 2016 should continue.
At least for now there seems to be no immediate reason to fear a new surge of the dollar to further fuel inflation. While there has been considerable exchange volatility since the government revised its inflation targets on December 28 and while this was revived earlier in the week around the time the Central Bank announced its new interest rates, the dollar returned below 19 pesos thereafter, closing at 18.96 pesos on Thursday, before briefly nudging up to 19.01 pesos on Friday. Even the government’s revised 2018 inflation target (15 percent, up from 10 to 12 percent) is now starting to look beyond reach.
When announcing their own inflation estimates on Tuesday (which totalled 24.6 percent for the year, not 24.8), Congress deputies concluded that pensions and family benefits increased only 1.7 percent more than inflation last year, thus recovering only around a quarter of their 2016 loss.
Under pressure from the political wing of the government, the Central Bank last Tuesday reduced its base interest rates for the first time since mid- 2016 – from 28.75 to 28 percent.
Yet many observers concluded that Central Bank Governor Federico Sturzenegger had at least partly reasserted his entity’s authority by cutting rates less than expected and the dollar stayed calm that day.
Opinions were divided as to whether the minimal cut should be seen as a token political gesture or whether the change in trend, at odds with rising inflation, is significant. But most analysts are expecting a further round in the tussle between the Central Bank’s monetarist orthodoxy and the fiscal laxity of the political wing.
The productive sectors generally expressed disappointment over this timid reduction although their critique was modified by fears that sharper cuts might devalue the peso, push up the dollar and launch a new inflationary spiral. A rising dollar would also worry the government, which needs to take on signficant levels of debt in the next two years in order to bridge the fiscal deficit with United States interest rates on the rise this month.
There was also a grudging satisfaction among industrialists as to the change in trend even if the rate cut proved to be a new example of gradualism. With their costs rising on almost every front, companies were hoping for easier credit.