The decision of Sergio Massa setting figures and deadlines for the anti-inflationary policy implies a high risk from a political point of view: if the CPI does not start with a 4 in January, all its management may lose credibility. That would automatically imply difficulties in sustaining price agreements with companiesthe union rebellion against the official guideline of 60% and, in addition, a severe questioning of the presidential candidacy of the minister.
Interestingly, Massa put himself in a situation analogous to that of the economic team of the macrista managementwho had adopted the inflation targeting system, consisting of a pre-announcement of the expected price increases for a whole year. As was made clear on that occasion, the problem is that there is no middle ground: in its best version, this goal influences the expectations of economic actors, in such a way that they all contribute to making this forecast of the decline come true.
But the opposite can also happen: that is, when there is a sign of non-compliance, mistrust spreads and then the boomerang effect occurs, with actors trying to cover themselves with higher increases than those officially projected.. It is, in fact, what happened to Frederick Sturzenegger and company in 2018 and, in the long run, it was what it cost Mauricio Macri electoral defeat the following year.
Massa You run that risk too.because the confidence that it generates in the actors of the economy will depend on its ability to sustain the downward path or encounter a rebound in the CPI records.
Prices: discouraging news
Although these days the minister is confident that he has overcome the difficulties without the forecasts of financial chaos having materialized, the truth is that his greatest threat is just a few weeks away and consists of the Difficulty meeting the goal that he himself has set.
His promise to follow a downward path of inflation, at a rate of one point every two months -until reaching April with a record of less than 4%- implies that, necessarily, in January the CPI should be around 4.5%. However, there are already signs that this month could equal or even exceed the 5.1% mark registered in December.
The problems of the former head of the BCRA accelerated when the market considered that his inflation target was unachievable
For example, the surveys of private consultants indicate that The food sector has already started January with higher increases than in December -which, in turn, had given a higher mark than in November-.
A key fact is that of meat pricewhich, although still low in relative terms, began to recover ground and runs at a rate of 3% per month, after months of advancing at a 1% pace.
For the coming weeks, the forecast of the experts in the agricultural business is that butcher shops will begin to suffer the classic effect after the increases in extraordinary supply -due to sending animals to slaughter, a consequence of the drought and the retraction of imports- . With producers cutting back on supplies and trying to rebuild their stocks, meat prices will inevitably rise again.
A report from the LCG consultant It is worth noting that food inflation, which had registered 3.5% in November and 4.7% in December, is approaching the step of 6% per month.
Worse yet, the number of products posting increases is on the rise again. At the start of the year, 30% of the food basket already has price increases. And the frequency with which those increases occur is getting shorter to periods of little more than a month.
There are more disturbing signs: for example, that the wholesale price index it is once again above the CPI, which is usually a preview of future increases in shelves, as a result of adjustments to cost increases.
And, of course, it will play an important role in the CPI for January the batch of increases in regulated servicessuch as transportation -which registers average increases of 40%-, prepaid medicine -with 6.9% in its second share of increase-, and the continuation of the scheme of gradual and segmented increases in electricity and gas.
Consultants warn that food prices regained momentum in January and are close to 6% per month
The blue dollar, under the magnifying glass
The greatest danger, however, does not appear in the list of prices that are part of the survey that INDEC does every month. This is another price, the relevance of which is growing: the parallel market dollar.
There are already many economists -even from the official political space- who believe that the official exchange rate has lost its role as a reference for merchants, who, given the difficulty in accessing dollars from the central bank they begin to take the blue as a parameter of input increases.
And the acceleration of the last few weeks, which brought the US bill to around $380, thus becomes another threat to the official plan. The price remains below the “Qatar dollar”, the price that economists consider a “natural floor” for the blue. And the exchange gap -currently 100%- is still far from the 160% that was registered when Massa took office.
In other words, in the financial market there is a general view that the blue still has a bullish runwhich adds one more ingredient of pressure on inflation.
In conclusion, today there are more who believe that January will not only not leave a CPI that starts with a 4 but, on the contrary, it is likely that it will end with higher inflation than that registered in December.
For now, the number projected in the Central Bank’s REM survey is 5.6%. But the worst thing is not the figure itself, but the fact that successive months are expected to mark an upward path, contrary to Massa’s thesis.
In this way, in the key month of April, in which the minister forecasts a record starting with 3, the consensus of economists expects 6%.
The escape of the blue dollar is considered another inflationary factor, because companies take it as a reference
The risk of wage overflow
How bad would it be if January inflation started with a 5 instead of a 4? If Massa had not made predictions, perhaps there would not be greater risks, because there is a certain consensus among economists that summer is a time of greater inflationary pressure than the previous quarter.
But Massa spoke. He placed the fight against inflation at the center of his mission as minister, and against all odds he clung to his prediction of 60% inflation for the whole year.
If the first month already starts with a default, it will not be difficult to generate a negative expectation about the general forecast, a particularly complicated situation when parities begin to be negotiated. Massa confirmed that he considers it key that there is no nominal excess in the wage level, as a condition for inflation to continue its decline.
More explicit was the Minister of Labor, Rachel “Kelly” Olmoswho expressed the fear that, in the face of excessive increase figures, employers automatically transfer higher labor costs to prices.
The truth is that the unions have revealed their natural reluctance to consider the figure of 60% as a valid reference. The precedents of recent years contribute to this distrust, because former minister Martín Guzmán He also asked that an official inflation projection be taken into consideration, which was later surpassed by reality.
Massa sends signals
Faced with the signs of distrust, Massa decided to send signals to the market, in the sense that he is aware that he must maintain certain traditional anchors for prices, especially when he enters the stage of the year in which public demand for money decreases.
Massa sends signals to the market with the rate and the exchange rate, but economists continue to see short-term risks
It is in this context that it is explained the caution of the Central Bank to cut the interest rate, under pressure from the productive sector that protests the difficulties in accessing credit.
Only last December, the net monetary expansion was $696,000 million -basically due to the payment of interest from Leliq and the difference between the preferential exchange rate for soybean producers and that of importers-.
According to the estimate of the Mediterranean Foundationthe real deficit of the public accounts, when the “quasifical deficit” due to the BCRA debt is added to the fiscal red, reaches the impressive figure of 8% of GDP.
Also the devaluation rate slowdown -which went from around 6.5% to 5.5% per month- aims to reassure the market, by aligning the exchange rate variable with the evolution of prices.
In any case, analysts believe that inconsistencies are accumulating and that conspire against the downward path that Massa foresees for the CPI.
In a framework of uncertainty -to which the electoral factor is added-, one of the worst news that the market could receive is that Massa’s projection is already starting with defaults, and that is precisely the risk that appears in sight with January inflation.
