The number of inflation of 8.4% monthly measured through the CPI for April that the INDEC released yesterday already gives an idea of what the starting point will be for May given that some consultants and banks have begun to warn that we should not rule out the two digits.
This scenario that shows the economy makes it very clear that, unlike what the President of the Nation Alberto Fernández stated, inflation is not a psychological problem of Argentinean retailers or Chinese supermarkets, but the result of erratic economic policy with strong fiscal, monetary and exchange rate imbalances that have become more evident so far this year.
Fernández affirmed on Thursday night that he had a conversation with the Minister of Economy Sergio Massa to establish a plan to lower inflation and literally said that “it is what I said and that they questioned me: self-constructed inflation. It is the psychological inflation that is not in the consumer, but is in the small merchant and the worst thing, or perhaps the best thing, is that we Argentines learned to live with that high inflation”.
Showing a total ignorance of economic theory, the president also added that “in April we had a run that brought the dollar to 500 pesosbut then it went down. Now there was a rise in prices that operates in the heads of Argentines as if the entire rise in the dollar was going to affect prices.”
He also pointed out: “The issue is that the dollar goes down, but prices don’t go down. Something similar happens with gasoline, which rises when oil increases, but when it decreases, the price does not fall.”
Inflation: the good and bad of the movie
The most serious thing was that the president stressed that “the super and hypermarket chains quite respect the Fair Prices program but the problem is that the Chinese supermarkets never want to enter the initiative to curb inflation“.
Inflation in April was 8.4%, according to official data from INDEC
According to this mixture of psycho-economic analysis that the president made, both Retail stores such as Chinese supermarkets would be the main cause of price remarks while large super and hypermarket chains would be the good guys.
Perhaps the president is not aware or has not been informed of the reality of those price agreements. As a sample of the program Fair PricesIt should be mentioned that it started last November with monthly inflation of 4.9% and in April inflation rose to 8.4%. In year-on-year terms. it went from 92.4 in November to 108% last April but in April 2022 it reached 58%.
This implies that, despite the programs of Careful Prices and Fair Prices, inflation measured monthly almost doubled in six months. On the other hand, since November inflation has always risen the following month and this phenomenon has been occurring for six months. The cause is not due to the pandemic, the war in Ukraine or the drought, as Alberto Fernández has mentioned several times.
To understand the phenomenon of Argentine inflation We can recommend to the president and his advisors on economic issues, consider concepts and explanations of the well-remembered economist Tomas Bulat who always stressed that the problem of the Argentine economy is inflation and not the dollar.
Dollar: cause of the problem or its consequence?
Bulat argued that, in moments of collective confusion, where apparent common sense lacks reason, it is important to explain the mistake of thinking that the disease is the dollar and inflation is the fever, and not the other way around.
“That is why the accent is placed on the dollar rising, but not so much on prices doing so. In this sense, we must mention that when the cause of a problem is confused with its consequence, it is not possible to find its solution“, explained the economist.
Drought is not the cause of the constant increase in inflation
In this case, he mentioned that “if we follow this type of reasoning, which many people accept as valid, that in order to maintain low inflation we should fix the price of the dollar and that never worked in Argentina to curb inflation because the dollar is one more price of the economy“.
To demonstrate this, he pointed out several aspects such as:
1) The inflation is the systematic, sustained and generalized increase in the general level of all prices of goods and services of the economy and the value of dollar it is a price plus as is the interest rate.
2) Although this is a dictionary definition, in street terms it means that prices rise, which they do for all goods and services, and each has its own logic.
3) This causes some prices to rise more than others, on different dates and in different ways. It also happens that a majority goes up and the one that lags behind later compensates with big jumps.
4) The problem with inflation is that it generates distortions in relative prices. Those distortions change quickly and abruptly the higher the inflation. There are always price variations, but with inflation of 3% per year they are not important, however, with one of 50% per year they are extremely dangerous.
5) Inflation is rising prices, but it can also be seen as the other side, that is, given an amount of money, less and less can be bought with it. The reverse of inflation is the loss of value of money or its purchasing power.
For Alberto Fernández, “the issue is that the dollar goes down, but prices do not go down”
6) Money is one more good of the economy. When there is a lot of any good, it is worth less, while when there is little of a good, it is worth more. That is the relationship between the amount of money and the amount of goods and services that an economy has.
7) Every purchase we make, we pay for it. Therefore, the amount of existing money must be enough to be able to pay for all the purchases of goods or services that we make..
8) If the quantity of goods and services grows all the time, it is necessary that the quantity of money grows in a similar proportion to be able to pay for those new goods or services. Now, if the amount of money grows much more than the amount of existing goods and services, then money is left over.
9) That circulating money, not being able to buy more goods or services because they are out of stock, goes to prices that rise until the amount of surplus money is finally absorbed.
10) The monetary cause It is not the only one in generating inflation. Structural inflation must also be taken into account, which is generated by distributive tensions in a highly unionized country (both workers and businessmen) whose disputes over salary or profitability are resolved not only in the market, but at negotiation tables with few people. .
This means that in the face of price increases to take advantage of a market situation that increases the profitability of companies, the workers’ unions ask for higher wage increases.
Bulat maintained that “our ignored inflation has these two causes. It continues to issue far more than the number of transactions that the economy has, fueled by the growing fiscal deficit and also operating in a logic of constant price indexing. For example, each year’s salary increases are based on the previous year, which means that the nominal values are increasingly higher, although in many cases the purchasing power is less.”
May has a high probability of marking a significant acceleration
In this case, inflation is already inertial and so that it does not rise any more, the government tries to fix some prices for a while, in an attempt to temper it, although not to solve it. The problem is fixing some prices while others increase in technical terms is known as an anchor (tariff and exchange rate). In this case, there are two prices that are left fixed and thus we believe that inflation will subside.
Inflation forecast in May
Regarding the future, the most worrying thing is that -according to the Institute of Statistics of CABA-, the escalation of financial dollars in the second half of April (CCL +10.8% between 04/17 and 04/30) it barely had an impact on the price rise for that month, adding 0.2 percentage points to the calculated 7.8% and leaving the full effect for May.
According to the opinion of José Donati (general director of Statistics and Censuses of the City of Buenos Aires), lhe rise in financial dollars in the second half of April (the CCL Senebi rose 10.8% between 04/17 and 04/30) had an impact of barely 0.2 percentage points on the total index for April, due to which will be reflected practically in its entirety in May.
The latest report from Portfolio Personal Investment highlights: “The anticipation of the April data provided by CABA shows that inflation continues to accelerate and taking the annualized three-month moving average as a proxy for the inflationary trend, we discover that the core (excludes seasonal and regulated) It has been accelerating from 96.7% in January and 114.5% in March to 132.9% in April, far exceeding the record speed of July 2022 of 114.5%”.
In this regard, high-frequency surveys of the first week of this month were already known, which placed inflation at 3.5/3.6% weekly, being the highest in more than twenty years, with the exception of the post-PASO 2019 measurement. , when the dollar shot up 29.6% between 08/12/19 and 08/14/19.
Therefore, May has a high probability of marking a significant acceleration and transforming into the highest record at least since 10.4% in April 2002 at the exit of the Convertibility Plan, the last stabilization plan that managed to lower inflation in Argentina.
The last one was the model imposed by Néstor Kirchner between 2003 and 2007, which achieved an average annual inflation of 12%, something that seems very distant and difficult to achieve by the government of Alberto Fernández, which accumulates inflation close to 500% in so far in his tenure. It is real and not psychological inflation that pulverizes the income of Argentines.
