Economy

Graphic: Breaking down Fernández’s first inflation results

27th February 2020

By Ignacio Portes

Graphic: Breaking down Fernández’s first inflation results

January was the first full month in charge for President Alberto Fernández, and his team was relatively happy to see a significant decline in inflation figures, which saw its lowest monthly number since July last year and the second-lowest figure since Argentina’s debt crisis flared up prompting a run against the currency in May 2018.

</p> <p>But is this the beginning of a long-term trend change or just another false dawn like the ones the country has seen all too frequently over the last few year?</p> <img class="alignnone wp-image-8016" src="https://gettheessential.com/wp-content/uploads/2020/02/inflation01.jpg" alt="Argentine inflation since 2017" width="730" height="436" srcset="https://gettheessential.com/wp-content/uploads/2020/02/inflation01.jpg 2500w, https://gettheessential.com/wp-content/uploads/2020/02/inflation01-300x179.jpg 300w, https://gettheessential.com/wp-content/uploads/2020/02/inflation01-1024x612.jpg 1024w, https://gettheessential.com/wp-content/uploads/2020/02/inflation01-768x459.jpg 768w, https://gettheessential.com/wp-content/uploads/2020/02/inflation01-1536x918.jpg 1536w, https://gettheessential.com/wp-content/uploads/2020/02/inflation01-2048x1224.jpg 2048w, https://gettheessential.com/wp-content/uploads/2020/02/inflation01-600x359.jpg 600w" sizes="(max-width: 730px) 100vw, 730px" /> <p>The 2.3 percent hike in the consumer price index seen last <a href="https://www.indec.gob.ar/uploads/informesdeprensa/ipc_02_20FB332E2E9F.pdf">January</a> was a slowdown when compared to the strong spikes of August and September, which came following the peso&#8217;s sudden drop from 45 to 60 per dollar after Fernández&#8217;s primary win. Then-president Mauricio Macri blamed that jump on markets&#8217; fear of Peronism, while Fernández accused Macri of using all its resources to prop up the value of the currency prior to the election only to lift that protection in its aftermath.</p> <p>In any case, both leaders agreed that Argentina had to implement a new version of the 2012-2015 prohibitions on foreign currency exchange, leading to the reappearance of black markets but also to a quieting down of the massive volatility that the peso had seen since 2018. This has helped quiet down inflation for the moment.</p> <p>In addition, most regulated prices, such as gas, electricity and water, have been frozen over the last few months, leading analysts to worry about the <a href="https://gettheessential.com/economy/2020/01/02/do-frozen-tariffs-risk-countrys-hopes-for-energy-exports">sustainability of raising subsidies</a> in these areas but bringing some relief to Argentine households. Since taking office, Fernández promised to extend these price freezes for at least six more months, as part of a <a href="https://gettheessential.com/politics/2019/10/10/alberto-fernandez-is-setting-the-ground-for-a-business-labor-pact">price-salary agreement</a> that he is looking to implement, and negotiated a temporary retrace of the most recent medicine price hikes seen after August.</p> <img class="alignnone wp-image-8017" src="https://gettheessential.com/wp-content/uploads/2020/02/inflation02.jpg" alt="A breakdown of Fernández's first full month's inflation results" width="730" height="421" srcset="https://gettheessential.com/wp-content/uploads/2020/02/inflation02.jpg 2500w, https://gettheessential.com/wp-content/uploads/2020/02/inflation02-300x173.jpg 300w, https://gettheessential.com/wp-content/uploads/2020/02/inflation02-1024x590.jpg 1024w, https://gettheessential.com/wp-content/uploads/2020/02/inflation02-768x443.jpg 768w, https://gettheessential.com/wp-content/uploads/2020/02/inflation02-1536x885.jpg 1536w, https://gettheessential.com/wp-content/uploads/2020/02/inflation02-2048x1180.jpg 2048w, https://gettheessential.com/wp-content/uploads/2020/02/inflation02-600x346.jpg 600w" sizes="(max-width: 730px) 100vw, 730px" /> <p>The INDEC statistics bureau&#8217;s <a href="https://www.indec.gob.ar/uploads/informesdeprensa/ipc_02_20FB332E2E9F.pdf">breakdown</a> of January&#8217;s 2.3 general inflation reveals a lot about how that monthly slowdown was achieved. The categories with the lowest hikes are all closely related to the most recent price agreements, with cheaper medicine impacting on the &#8220;health&#8221; category and frozen telephone and energy prices also helping keep many categories down.</p> <p>Other uncontrolled areas saw higher hikes, however, particularly food and beverages, which soared after Macri&#8217;s VAT suspension for foodstuffs was not renewed by Fernández after the new year.</p> <p>Repressing inflation is a policy with clear limits, as the most extreme case of Venezuela has proven, but for now Fernández&#8217;s team is looking to continue down this path while also trying to moderate money printing and postponing its debt maturities, in a bid to show better inflation figures than under Macri during their first year in charge.</p> <p>(The article is illustrated by a picture of Peronist economist Jorge Todesca, who was tasked by Macri&#8217;s administration with reconstructing INDEC&#8217;s statistics after 8 years of Kirchnerite distortions. Todesca passed away last Friday.)</p> <p>

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Ignacio Portes

Ignacio Portes is The Essential's General Editor. Former Economy editor at the Buenos Aires Herald, he has also written for publications such as Naked Capitalism, NSFWCorp and Revista Debate.