Inflation in Argentina hits a new record and goes to 109% – 05/12/2023 – Market

Inflation in Argentina hit a new record in April and reached 109% in the last 12 months, the highest value in almost 32 years. To give you an idea, the increase in prices in the country in a single month (8.4%) represents twice the amount registered in the entire last year in Brazil (4.2%).

The consumer price indices for both countries were released this Friday (12), by Indec (National Institute of Statistics and Census) on the Argentine side and by the IBGE (Brazilian Institute of Geography and Statistics) on the Brazilian side.

The neighboring nation’s number was higher than expected, even though expectations were already high compared to March. Since the beginning of the year, Argentines have been living with triple-digit inflation, which means that the value of the peso “melts” quickly, making saving difficult.

Once again, what drove costs the most was food, affected by a historic drought that compromised practically half of the harvests of the main products. Clothing, restaurants and hotels also recorded an above-average increase.

“If you like it, it’s better to take it straight away, because this is the last day at that price,” says saleswoman Cecilia Díaz, 58, showing a customer a pair of green pants at a thrift store in Palermo, one of the tourist districts of Buenos Aires. The area has been flooded with Brazilians recently, attracted by the low prices.

“The key to understanding Argentine inflation is basically the large fiscal deficit. With decades of inflation and a small financial market, the state is unable to issue enough bonds to remedy the deficit, so it starts printing money, and its value drops,” he says. economist Fausto Spotorno, director of the OJF consultancy and coordinator of the business school at the Universidad Argentina de la Empresa (Uade).

Last month’s inflation was also pressured by a strong currency run. The “blue” parallel dollar, which dictates day-to-day life in Argentina, rose uninterruptedly for 15 days in April and only dropped after strong interventions by the Peronist government of Alberto Fernández.

The release of inflation this Friday, negative news for the president, was surrounded by political controversy. Indec announced last week that it would postpone the publication of the number to Monday (15), to avoid interference in the provincial elections that will take place this Sunday (14) in the country.

The measure, however, was considered to favor government candidates, and the institute withdrew. Director Marco Lavagna maintained the dates established a year earlier and, in a note, “regretted that the intention to separate statistical work from the electoral process was misinterpreted.”

With prices continuing to rise, the Minister of Economy, Sergio Massa, this week announced yet another wave of increases in retirement, pensions and social benefits after 90 days, as well as in the floor for paying income tax.

If a year ago, those who earned more than 225,000 Argentine pesos had to declare tax, now they will only have to declare those who earn more than 506,000 (the equivalent of approximately US$ 1,100 or R$ 5,600 in the parallel exchange rate). The increase is 125%, therefore above accumulated inflation.

Social security and scholarships given by the government to low-income families also had an increase of 130%, above inflation in the last year – a real increase of 7%, according to Massa. With this, an Argentine pensioner will earn from 121,407 pesos in June (US$ 260 or R$ 1,300).

“It’s not spending, it’s investment”, defended the minister, pre-candidate for the Presidency by the most Kirchnerist sector of the government. “It’s not just to guarantee the purchasing power of retirees, but also because of the impact that these people have on the internal market. Argentina has three economy engines: internal market, exports and investment, and clearly the internal market is the most important pillar .”

For consultant Spotorno, the measures should have a limited impact. “The government wants to prevent people from having an income problem, even more so in an election year, but this will end up happening anyway because it will be a year of recession”, he says.

This Friday, before the release of inflation figures, Casa Rosada also imposed new restrictions on purchases abroad, with the aim of curbing the outflow of dollars from the country —an Argentine can only purchase up to US$ 200 (about R$ 1,000). ) per month officially, for example.

Now, to buy a gift card with a credit or debit card through a foreign website like Amazon, you will also need to request prior authorization from the Central Bank, as was the case with jewelry, bets and cryptocurrencies.

The country suffers from a lack of American currency, which makes it difficult to pay off a loan of US$ 44 billion contracted in 2018 with the IMF (International Monetary Fund). The government is trying to negotiate payment deadlines and speed up the fund’s disbursement schedule, and for that it is seeking the support of Brazil and the United States.

Last week, President Fernandez traveled to Brasília and met with Lula (PT), who pledged to help. This Thursday (11), the Minister of Finance, Fernando Haddad, spoke about the matter with the Secretary of the US Treasury, Janet Yellen, in Japan. The Americans are the biggest shareholders of the IMF.

Argentina lives immersed in economic instability. In 40 years of democracy, completed this year, it has gone through nine major crises, maintaining to this day the same GDP per capita as at that time. Fernández is seen as incompetent to solve the crisis, and Massa, as someone placed to “hold the ends” until the October elections, handing the pineapple to the next government.