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ECONOMY | 12-09-2019 16:32

Inflation in August reached 4%, so far this year prices up 30%

Price increases accelerated last month, according to INDEC bureau. Inflation over last 12 months now totals 54.5%

Inflation in August reached four percent, the INDEC national statistics bureau revealed Thursday, underlining the extent of the challenge facing both the current and the next governments in Argentina.

The data means that inflation is once again accelerating and that retail prices in Argentina have increased by 30 percent so far in 2019. Year-on-year inflation, recording the last 12 months, has now risen to 54.5 percent.

The price increases, however, were exacerbated by the currency turmoil in the wake of the August 11 PASO primaries, in which opposition Peronist challenger Alberto Fernández emerged with a huge lead over President Mauricio Macri. In the wake of that news, the peso weakened by the US dollar by at least 20 percent.

The most dramatic increases registered in INDEC's Consumer Price Index (CPI) were in household equipment (6.1 percent), healthcare (5.2 percent) and food and beverages (4.54 percent). Transport, meanwhile, rose four percent, restaurants and hotels were up 3.6 percent, with clothing and footwear up 3.1 percent.

Argentina has been in recession since the second quarter of 2018, with a rising level of debt that is creeping close to 100% of the Gross Domestic Product (GDP). Poverty is greater than 30 percent and unemployment, currently at 10.1 percent, is expected to increase in the next quarter.

In recognition of the crisis, the Chamber of Deputies – with votes from both the ruling party and the opposition – on Thursday approved a 'food emergency' law which would increase the number of programmes for the most vulnerable sectors, as well as boosting their budgets.

Despite anticipating a surge in consumer prices last month, the acceleration of inflation will come as a blow to President Mauricio Macri's administration, which in July had seen prices slow on the previous months, rising by 2.2 percent. 

The peso fell 26 peso in August, forcing the government to delay debt payments and implement capital controls. Still, prices could rise even more in September because of a lag between the peso’s weakening and price adjustments, economists say. Analysts see September inflation at 5.8 percent, according to the Central Bank’s most recent monthly survey.

“September will be worse for inflation because the full pass-through to prices from the peso’s fall will be felt,” said Matias Carugati, an economist based in Buenos Aires. “The currency depreciation hit relatively late in August.”

Budget estimate

Just a few days ago, via briefings about a Budget proposal due to be sent to Congress, the government revealed what it expects in terms of price increases and economic growth this year.

The bill, which will be sent to Congress on Monday, will be in place for the next government. A formality required by law, it is not likely to go up for discussion until December 10, when both legislative chambers will have new representatives.

According to reports this week, the central focus of the bill will be to maintain the primary fiscal surplus target of one percent of GDP, as agreed under the government's record credit-line with the International Monetary Fund. 

Details, however, inside its text indicate the government anticipates inflation to close at 53 percent this calendar year, before dropping to 34 percent in 2020.

Treasury officials also said the bill predicts the economy will shrink by an average of 2.6 percent in 2019, before returning to growth of one percent in 2020.

It also predicts that the average exchange rate next year will weaken to 67 pesos per US dollar. The greenback is currently trading at around 57 pesos.

The budget also foresees a trade surplus of US$16.1 billion in 2019 and US$17.5 billion in 2020, according to officials cited by Reuters.

– TIMES/AFP

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