Monday, July 15, 2024

ECONOMY | 13-06-2024 16:11

Inflation in Argentina slowed to 4.2% in May – lowest monthly rate in two years

Monthly inflation drops below five percent for the first time in more than two years, decelerating for the fifth consecutive month.

Monthly inflation in Argentina dropped below five percent last month for the first time in more than two years, official data showed Thursday.

The INDEC national statistics bureau reported a rate of 4.2 percent for May, the fifth consecutive monthly decline and the lowest since January 2022 (3.9 percent).

Consumer prices had risen by 8.8 percent in April, meaning that from one month to the next, inflation more than halved.

The news is a boost for President Javier Milei, who the previous day was able to celebrate a slender Senate victory for his sweeping ‘Ley de Bases’ mega-reform bill and accompanying fiscal package.

Nevertheless, prices have increased by 71.9 percent in just the first five months of the year, underlining the severity of the task of bringing inflation under control.

Inflation over the last year totals 276.4 percent.

The divisions registering the highest increases last month were communication (up 8.2 percent due to hikes in the costs of telephone and Internet services), education (rising 7.6 percent) and alcoholic beverages and tobacco (6.7 percent, factoring in price rises for cigarettes).

Food and non-alcoholic beverages, which have consistently risen at above average rates, rose 4.8 percent in May.

The smallest increases were seen in healthcare (0.7 percent) and housing, water, electricity and fuels (2.5 percent).

Government officials had projected optimism ahead of the release of INDEC’s data. Earlier this week, Economy Minister Luis Caputo had anticipated that "inflation in May will be below five percent."

In a statement Thursday, the Economy Ministry hailed the "deepening” of the “ongoing disinflation process.”

"Price dynamics were once again below the consensus of analysts participating in the BCRA's Relevamiento de Expectativas de Mercado (REM)" survey, said the portfolio headed by Caputo.

In December, the month budget-slashing President Javier Milei took office, inflation leapt by 25.5 percent, provoked by his devaluation of the peso by more than 50 percent.

Milei has vowed to halt Argentina's economic decline and reduce the budget deficit to zero.

He has slashed public spending, cut the Cabinet in half, done away with tens of thousands of state jobs, suspended new public works contracts and ripped away fuel and transport subsidies.

In April, Milei hailed the country's first quarterly budget surplus since 2008.


Significant fall in consumption

The slowing of inflation has come at the cost of falling consumption. Economic activity in April fell 8.8 percent year-on-year, according to INDEC. In the first quarter of 2024, activity slumped 5.3 percent from the previous year.

The decline has been felt especially at bars and restaurants. Local reports estimate that the gastronomy sector has seen a decline of between 25 and 30 percent so far this year, while data from the Confederación Argentina de la Mediana Empresa (CAME) industry group has registered a sales drop of 22.1 percent so far this year.

Critics say Milei's few wins have come at the cost of the poor and working classes, and were unlikely to last.

Economist Hernan Letcher of the CEPA economics think tank said the inflation drop was explained, in large part, by a "significant fall in consumption."

"We consultants expect that the process of reducing the rate of inflation will not continue in June," he said.

"The [REM] market expectation survey shows that a level in the order of five percent will be maintained until the end of the year."

The International Monetary Fund expects Argentina's economy to contract by 2.8 percent this year, after a 1.6-percent decline in 2023.

The government this week reported a 16-percent increase in real wages in the private sector in April and a recovery of purchasing power that is the "most significant since 2009."

It is a relative figure, however, in a country where informal employment accounted for more than 45 percent of the work force even before the impact of Milei's austerity measures started hitting home.

Poverty now stands at 55.5 percent, according to data from the Catholic University of Argentina's Social Debt Observatory.

Last month, Argentina introduced a 10,000-peso banknote, worth the equivalent of about US$11 – five times the face value of the previous biggest 2,000-peso bill.

Thursday's inflation data came hours after a key victory for Milei in the Senate, which approved a modified version of his economic liberalisation package.

Milei's bill, which makes provision for privatisation of state-owned companies and weakens labour protections, have raised the ire of workers and leftists, who fought running battles with police outside Congress on Wednesday.

The draft legislation must still be given a final green light by the lower house Chamber of Deputies. 



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