With a slowdown compared to the December peak, but still at very high levels, January inflation was 20.6%, still affected by the drag of last month’s devaluation and the price liberalization policy promoted by Javier’s government Milei. In 12 months, prices rose 254.2%.
Annual inflation remains the highest since April 1991 (267%), while the monthly number is only below that seen in the country in February of that same year (27%).
This is the first price index purely under the libertarian administration, since the December peak (25.5%) was shared by both administrations: the last one, which deepened the distortions of relative prices through freezes and poured thousands of pesos into the market in search of achieving a good electoral result. And the new one, which began a path of shock to normalize these variables.
The division with the greatest increase in the month was Miscellaneous Goods and Services (44.4%), as a result of the increase in personal care items. They were followed by Transportation (26.3%) – due to increases in public transportation and the drag of the increase in fuel – and Communication (25.1%), due to the increase in telephone and internet services.
The chapter with the highest incidence in all regions was Food and non-alcoholic beverages (20.4%). Within the division, the increases in Meat and derivatives and Bread and cereals stand out. Core inflation, which eliminates regulated and seasonal prices, showed an increase of 20.2% in the month.
Caputo’s look
According to the Ministry of Economy, the January data “confirms the path of deceleration in nominal value that has been observed since mid-December, at a faster speed than expected by the market.” In addition, they added that the January number still implicitly has a high statistical drag from December, derived from the inherited monetary overhang and the honesty of relative prices in the first week of the current administration.”
“The transfer to prices of the December devaluation was much less than the jump in the exchange rate in August of last year. While at that time the improvement in the real exchange rate was consumed in less than two months, between December and January inflation was 51%, compared to a nominal increase in the reference exchange rate of 129%. This occurred despite the fact that, starting in December, other prices that were severely delayed were revealed, such as fuel or mass consumption products that were under controlled price schemes,” they explained in the Treasury.
“The economic program carried out by the Ministry of Economy aims to sustain and deepen this disinflation scenario. The combination of fiscal, monetary and exchange anchor, and the normalization of foreign trade ensure a decreasing inflationary trajectory,” they closed.
The market expected inflation of around 20% for January. For example, in the first Survey of Expectations (REM) of the year, those who participated in the Central Bank (BCRA) survey had estimated monthly inflation of 21.9% for January. The Buenos Aires statistical department, meanwhile, released last week its index for the first month of the year, which showed an increase of 21.7%.
For February, the REM expects an increase in monthly inflation of 18% and only observes a decrease to single digits starting in June (8%). However, the Government are more optimistic, and believe that the strong recession – a drop in consumption through – that the economy is in can achieve that objective sooner, in April, since March is a seasonally high month (it is usually the peak in normal years due to the start of classes).
The REM estimates that inflation at the end of the year will be between 207.4% and 227%. In this way, it could exceed that registered in 2023, of 211.4%. This is the highest variation since 1990. In the four years of Alberto and Cristina Kirchner’s government, inflation far exceeded an increase of 900%.
The sharp rise in prices cut the salaries of Argentines, which last year grew – according to Indec data – by 152.7%. Salaries are already at levels equivalent to those of 2005.
Meanwhile, retirements will increase – with the formula of Alberto Fernández and Cristina Kirchner still in force – by only 30% since March, with projected inflation that far exceeds 50% for the first quarter. Retirements, according to some private estimates, are at levels equivalent to those of 2002.
The adjustment via inflation is harder, even if it is taken into account that the Government is starting from a crisis that has been liquefying salaries, pensions and retirements for years, at least since 2018. In the 72 months that elapsed between January of that year and December 2023, formal private workers lost the equivalent of 10.5 salaries; public ones, the equivalent of 12.4, and informal ones, the equivalent of 19.1according to official data processed by Iaraf, led by Nadín Argañaraz.
“The economic package is made to stabilize the economy and so that people do not suffer more problems of inflation and devaluation and does not depend in any way on the Law,” said the Minister of Economy, Luis Caputo, after the Congress rejected the called omnibus law. “When we arrived, for almost two weeks, inflation was 1.5 daily. We went from 1.5 daily to 1.5 weekly, with which we are clearly seeing a significant inflationary slowdown,” added the minister.
“The income for retirees was liquidated by the last government. Retirees lost between 15 and 40% depending on the asset you take as a reference. This formula does not work because while we are in situations like those of recent years, retirees are disadvantaged,” the minister stated then.
The former president and vice president, Cristina Kirchner, questioned the Milei and Caputo government today in a 33-page document. “So far, the new government has only deployed a fierce adjustment program that acts as a true destabilization plan and that not only feeds back into the inflationary spiral, placing society on the brink of shock, but will also inevitably cause an increase in unemployment and social desperation in a kind of planned chaos,” he wrote and then pointed out that neither the fiscal deficit nor the emission are the cause of inflation: “The question of the deficit deserves a separate chapter. fiscal and the monetary issue to cover it as the only cause of inflation as maintained by the President in office and many economic ‘analysts’. “The world shows that this thesis has no basis in reality”. José Luis Espert treated her as “brute.”
The expert’s opinion
“January’s 20.6% showed a significant slowdown compared to December, especially during the last two weeks, according to private measurements. February could register a figure close to 15% and, before April, be in single digits,” said financial consultant Federico Domínguez.
“The entire Government program is based on the fiscal anchor. The BCRA transfers debt to the Treasury, and there is no BCRA issue to finance the treasury. Caputo is absorbing liquidity from the market to close the gap. At the same time, the recession caused by the fiscal adjustment means that demand does not validate price increases. Finally, we are beginning to see an incipient normalization of the flow of imports. All of this will continue to contribute to the decrease in inflation and will partially offset the increases in regulated prices. “Inflation could be below the REM projection,” he added.
“In the coming months, due to the increase in dollar prices, a new devaluation will be necessary. To limit the transfer to prices, it should occur within the framework of a nominal exchange rate anchor, such as dollarization. Although this would cause a price increase, in the context of the recession, the increase would be limited,” added Domínguez.
“The data was quite in line with what was expected, less than what December had been,” said Camilo Tiscornia, from the consulting firm C&T. “You can see the clear effect of the carryover of what was the December increase. There was a moderation throughout January, but the data for the month, which is an average, gives you very high results due to everything that had risen in the second part of last month due to the devaluation,” added the specialist.
“Inflation is likely to fall further in February. It can be close to around 14% or 15%. What we have seen this week is that there were some fairly significant increases in food and beverages, especially food. We will see if it has to do with some of the rain, that there has been some type of supply problem, but there was a fairly strong increase in food,” he concluded.
“The slowdown in January is in line with what we projected from Analytica, among other things, because in the weekly survey throughout the month, smaller increases were recorded in food and beverages,” said Claudio Caprarulo, director of that private consulting firm.
“In relative terms, the data is good because it is a drop of five points from one month to the next. The problem is that it is partly sustained by transitory factors such as the freezing of the exchange rate. And, on the other hand, 21% monthly inflation continues to be very harmful to the economy. Beyond the impact on inflation that remains to be seen due to the increase in regulated prices in February and March, and the increase in the monthly depreciation rate, if the Government manages to consolidate a declining trend since mid-year, it will have to establish mechanisms so that “The dynamics of the first months do not generate behaviors and consequences that are difficult to reverse,” the specialist concluded.
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