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ECONOMY | 18-04-2024 15:29

Government dreams of a single digit as inflation begins to slow

Price hikes slowed in the first half of April, according to analysts, with officials in President Javier Milei's government daring to dream of a single-digit inflation rate for the month.

Following the 11-percent inflation recorded in March, price hikes are continuing to slow. A significant slowdown was recorded in the first half of the month and the monthly inflation rate in April could finally return to a single digit. 

This is the conclusion of the high-frequency calculations by multiple consultancy firms, in addition to forecasts by Javier Milei’s government of inflationary dynamics.

According to Economy Minister Luis Caputo, the downward path for the cost of living responds to the implementation of a battery of measures aimed at ensuring fiscal balance and restoring the international reserves of the Central Bank.

Even though monetary pressure and the stability of Argentina’s various exchange rates have had an effect on the prices of the economy, there is consensus among economists about the major role the recession is playing as a moderating factor of inflation.

Salaries and hence Argentines’ purchasing power has weakened, consumption has dropped and consumers no longer validate steep price increases with purchases. Consequently, the contraction of demand fixes a ceiling for product mark-ups and has slowed the inflationary process.

A report from the EcoGo consultancy firm informs that in the second week of April, food prices increased by just 0.2 percent – marking a considerable decline from previous weeks. 

“With these data points and considering increases projected for the remaining weeks of 1.3 percent, inflation in food consumed in households might only amount to 5.4 percent in April," they claimed.

In that vein, the firm led by economist Marina Dal Poggetto projected an overall 8.9-percent inflation rate for the entire month.

“The lower projections than in the previous week are in keeping with food inflation data [which is] well below expectations, together with slight rises in the remaining sectors, which leads to a downward modification of our projections for the next few weeks,” said an EcoGo report.

In turn, the Fundación Libertad y Progreso has calculated a monthly 9.5-percent increase in the first half of April, slowing 1.1 points from 10.6 percent seen as of the close of March. 

“In the second week of April, the variation was a weekly 0.4 percent, the lowest level recorded in six months. One must go back to October 2023 to find a similar rise. Thus, we project the rise of the foundation’s CPI in April at nine percent, the first single-digit variation since October 2023,” it stated.

The foundation’s economist Emilio Prado held that “even though inflation in April will be explained to a larger extent by the increase of regulated prices, the other goods in the economy are slowing down as shown by the second week of the month, and [are] reflected in the monthly core inflation of around seven percent.”

“Looking onwards, we expect the average pace of price increases to be increasingly lower. Its speed will depend on the Central Bank continuing its austere [money-]printing [levels] and [if] the commitment to reach zero fiscal deficit consolidates as the months go by. In that vein, a legislative scenario accompanying a fiscal reform will be a better alternative to the current vaporisation of pesos,” Prado added.

According to the LCG consultancy firm, the second week of the month closed with a 0.2-percent inflation in food and beverages – the lowest monthly level recorded since July 2023. At the same time, the measurement slowed down by 0.2 percent compared to the previous week. Thus, the cumulative rise equals 0.6 percent in the first half.

The indicator covered four consecutive weeks with an inflationary dynamic under one percent. “The rise has averaged 6.2 percent over the last four weeks and 2.1 percent point to point over the same period,” the authors of the report explained.

Within the report, only four of the ten categories registered increases: dairy and eggs (4.2 percent), condiments and other food products (1.1 percent), beverages and infusions for household consumption (0.6 percent) and meats (0.4 percent).

On the contrary, fruits (down 0.1 percent), oils (down 1.5 percent), vegetables (down 1.8 percent), bread, cereals and pasta (down 2.2 percent), and sugar, honey, sweets and cocoa (down 3.3 percent) were deflationary. In other words, the price of said products fell.

Meanwhile, C&T Asesores Económicos has disseminated an optimistic zero-percent inflation rate for the second week of this month. 

“In food and beverages it dropped by 0.4 percent and when looking at food consumed in the household in particular, the decrease is by 0.8 percent,” explained the firm’s director, María Castiglioni Cotter.

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Martín Fernández Nadale

Martín Fernández Nadale

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