Inflation to come: with a 6% floor this month and a 3-digit annual rate, can it drop to 60% in 2023?

After the August inflation figure of 7%, the Consumer Price Index (CPI) in September consolidates at a floor of 6%, according to consultants’ estimates based on the evolution of prices in the first fortnight.

The increases that affect this month are the rises in electricity, gas and subway rates (10.4%, 14.9%, and 40%, respectively), taxis (30%), cigarettes (11.3%), schools in the province of Buenos Aires (9%), domestic service (9%), expenses (between 6% and 10%), among others.

A red flag for economists is that Core inflation in August was high (6.8%), just below the average of the general price index, reflecting a deep-seated inertia for which They see it as difficult for the cost of living to break the 6% floor in the coming months.

Before this panorama, the annual inflation projected by most consultants has already reached three digits: in C&T Economic Advisors calculate 100%, and they forecast the same figure in LCG, EconViews, and ACM. While in Eco Go it was located at 99.9% and the Fundación Libertad y Progreso and Ecolatina estimate a floor of between 93% and 95%.

In this context, economists they do not see it possible for inflation to be reduced to 60% in 2023, as the government would propose in the budget bill for next year. Some even predict that the cost of living will be higher than in 2022.

Inflation: a floor of 6% is expected in September

Private consultants estimate that September inflation will be between 6% and 6.5% and they do not rule out that the increase in prices -year-on-year- reaches 100%.

September inflation will remain high and will range between 6% and 6.5%, according to consultants

In Echo Go project for September a cost of living of 6.3%. According to the consultant’s survey, with data from the first two weeks of the month (as of September 9), the item that exhibits the greatest increase is Housing with a rise of 9.2% Behind are the sectors of Leisure (8.2%), Miscellaneous Goods and Services (7.7%), and Food and Drinks 6.3%.

Mary Castiglioni, director of C&T Asesores indicated that she also Inflation of 6.3% is expected for September. The economist considered that a signal that sets off the alarm is that In August, core inflation “remained high and it is a worrying figure”and emphasized: “that marks that it is difficult for inflation to go down fast. We don’t see it dropping below 6% in the coming months.”

For his part, Eugenio Mari, chief economist of the Fundación Libertad y Progreso stated: “In the first fortnight of September, the inflation measurement we carried out showed a monthly rise of 5.2%the same trend as that registered in the same period in August”, which projected a cost of living of 6% for the entire month.

The economist explained that “the composition of this month’s rise is different: push prices up by removing gas and electricity subsidies, which in total will contribute 0.5 percentage points to the rise in the general CPI, and the increase in clothing prices is accelerating again”.

The item of clothing and footwear led inflation in August with a rise of 9.9% and also in the year-on-year comparison with an increase of 109%, due to restrictions on imports and shortages of supplies. In that sense, Castiglioni said that “the clothes are increasing every month, but in September there is always a jump for the new spring-summer season”.

Similarly, in Ecolatina they highlighted that the core indicator “averaged 7.1% in the last two months2.1 percentage points above the average of the previous two months, reaffirming the predominance of a strong inflationary inertia”.

Given the acceleration of the official exchange rate, economists see it difficult for inflation to break the 6% floor in the coming months

Given the acceleration of the official exchange rate, economists see it difficult for inflation to break the 6% floor in the coming months

In this framework, the consultancy expects inflation to be around 6.5% in September and maintained that, in addition to the various increases already planned for this month, will impact “the largest exchange rate slide that has been validated by the Central Bank -the official exchange rate has been running at a rate of 6.5% in the month, (exceeding more than one percentage point than in August) and the strong inertia mentioned”.

In Facimex Valores they assure: “LThe pressures will continue in the coming months, in a context that combines a very high monetary issue, a devaluation rate of 6.5% and the lack of a nominal anchor for expectations”, so they estimate an inflation of 6.5% for September”.

Is triple-digit annual inflation possible?

Castiglioni He stated, based on the increases that were defined in rates and the inflationary dynamics, “We are projecting 100% annual inflation.” “Despite the signs that the government is giving, inflation is not going down as fast as monetary stimuli. On top of that, it comes with a very large indexation that if inflation expectations do not change, it is very difficult to correct,” he also stated.

The economist clarified that this calculation of 100% per year is only under the assumption that neat growth is achieved and the goal is met, that is, loosen up with public spending and monetary issuance to finance the deficit. If he manages to fulfill it, he would end this year hovering around that figure.

“Whether it closes at 100% or not, It will depend on what happens with the official exchange rate. The government is accelerating it, which on the one hand is useful because it is behind – but it impacts you (in prices) – and on the other, that there is no further escalation of financial dollars. In September there is all the liquidity of the soybean dollar. Let’s see what happens later.” he stressed.

The rise in electricity and gas rates drives inflation in September

The rise in electricity and gas rates drives inflation in September.

Andrés Borenstein, chief economist at EconViews, said that after the inflation data for August, they expect annual inflation of 100%. and Agustin Berasategui, ACM analyst said that he also raised the projection for all of 2022 to 100%.

In turn, Mari stated: “Closing 2022 with three-digit inflation is a scenario that is gaining more and more probability. Our projection is 93%, but it must be said that the nominal nature of the Argentine economy increases the variability of the projections. Already in the INDEC measurement for August, they begin to appear several raises above 100%; For example, clothing and footwear posted triple-digit year-on-year increases in all regions.

For its part, in Ecolatina they evaluated, with a view to the coming months, that “the advancement of the increases scheduled in the paritarias, a devaluation rate consolidated at levels higher than the past months and the effects of the first and second round that the adjustments will have in rates (we estimate that in total they would have an impact of 2.8% from September to March) and fuels will be combined to keep inflation above 5.5% per month.

The consultant predicted -if there is no forward shock- an inflationary floor of 95% and “no signs of a slowdown substantial in 2023″.

Inflation 2023: can it go down to 60%?

The economists judged as “unrealistic” the possibility of reducing inflation in 2023 to 60% -according to the pattern that emerged that will appear in the budget bill for next year- given that it is an election year.

Castiglioni noted that “We definitely don’t see it going down to 60% in 2023, we are projecting an inflation of 90%”.

Economists see the unrealistic possibility of reducing inflation in 2023 to 60% as the Budget project would contemplate

Economists see it as unrealistic to reduce inflation in 2023 to 60%, as the Budget bill would contemplate

“If the government manages to maintain interest rates above inflation, lower the fiscal deficit to 1.9% of GDP (the goal agreed with the IMF) and do all the tedious homework, could help keep inflation lower in 2023. But it’s an election year, which implies pressure on public spending, which in turn, demands that the economy does not slow down too much, with which it is difficult to think that it will go down too much,” he stated.

In tune, Mari I think that “lowering inflation in 2023 is possible, although unlikely” and calculated a 98% floor. “Getting out of the current inflationary regime will require very important signs of fiscal and monetary austerity, that the government would hardly carry out in an election year,” he opined.

For his part, Berasategui considered: “That inflation is reduced to values ​​of 60%, it is unrealistic without concrete announcements on how it is planned to stabilize the macroeconomy.” “The adjustment of fiscal accounts and monetary variables (such as emission and interest rate) are limited by the context of the electoral year,” he added.

Instead, Borenstein projected an inflation of 110% by 2023that is, a figure that exceeds the line projected at the beginning of this year.

Given the high inflation in August, the BCRA raised this Thursday the interest rate on fixed terms from 69.5% to 75% per year

Given the high inflation in August, the BCRA raised this Thursday the interest rate on fixed terms from 69.5% to 75% per year

For his part, Sebastián Menescaldi, director of Eco Go, said that an inflation guideline of 60% “does not look very true”, and indicated that “at least we are expecting inflation similar to this year“.

Likewise, Federico Furiase, an economist at Anker Latin America, in a virtual talk organized by the fund manager MegaQM, warned: “We are approaching a higher inflation regime.”

“Today it seems difficult to break the 6% monthly floor, in a nominal race where you have the crawling of the official exchange rate that is hitting corrections so as not to lose ground against inflation, the rise in the interest rate, the increase in rates that it has to lower the deficit and the reopening of parity to recompose ground against inflation. That is the main macro constraint facing 2023,” he analyzed.

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