Inflation hits lowest since Covid in win for Milei

Argentina’s monthly inflation slowed to the lowest level since the height of the pandemic, scoring a major victory for President Javier Milei ahead of a crucial midterm vote.

Consumer prices rose 1.5 percent in May from April, far below the two percent median forecast of economists surveyed by Bloomberg, and the lowest reading since May 2020. Annual inflation slowed to 43.5 percent, according to government data published Thursday.

Food prices rose only 0.5 percent in May compared with the previous month on seasonal factors, driving disinflation. In the greater Buenos Aires region, vegetable prices plummeted 9.8 percent, while fruits fell 1.7 percent on the month. Excluding the Covid months, May’s inflation is the lowest since November 2017. Communication services, restaurants and health registered the biggest hikes.

“May’s print surprised well to the downside, clocking below our estimates, driven by a wave of seasonal disinflation,” said Santiago Resico, economist at brokerage firm one618.

Multiple consulting firms revised their May estimate after Buenos Aires city released its data Monday. Prices in the capital city rose only 1.6 percent on the month, the lowest since June 2020.

The slowdown in food and beverages, which weighs heaviest, was driven by seasonal factors, including reduced rains, while lower taxes, a lack of currency volatility and retail discounts also helped. Moderate price hikes are likely to extend until July, the start of the winter holiday, according to one618.

Argentina will go to the polls in October to vote for a large part of the national Congress, and Milei’s economy will be the main item on the ballot. A good election result for Milei could convince wary investors that his pro-market reforms are here for good.

In September, the province of Buenos Aires, home to nearly 40 percent of the population, will also vote for its local representatives, but its implications will reverberate across the country and markets.

On Monday, the Central Bank unveiled a slew of measures aimed at helping the South American nation amass more hard-currency reserves.

The monetary authority said local currency bonds could now be purchased with US dollars and eliminated the minimum time requirements for foreign investors to hold onto some Argentina notes, among other measures. The country sealed a US$2-billion repurchase agreement with seven international banks Wednesday.

The weak inflation print is bound to give a hand to the upcoming treasury auction of peso instruments, Resico added.

The measures will consolidate disinflation and boost the country’s monetary framework, the International Monetary Fund said at a regularly scheduled press conference Thursday.

At the end of the month, the lender will send a technical mission to Buenos Aires to evaluate the country’s progress on its US$20-billion programme so far, spokesperson Julie Kozack added.